Commission DG Environment et al., 2006). In addition, there were some concerns that brokers fees might have proven overly burdensome for participants with small allocations and no in-house trading capacity, given minimum thresholds on trade volume (Convery and Redmond, 2007).

Out of twenty-seven respondents to the Irish survey, eleven firms traded some allowances in the first period of the EU ETS: six sold allowances, and five purchased them. Interestingly, three of the five who bought European Union Allowances (EUA)'s held allowances in excess of their verified emissions at the end of the first period. The remaining sixteen respondents neither sold nor bought allowances. Seven of these firms held significant surpluses of allowances at the end of the trading period.

These observations raise at least two interesting questions. The first question is why the non-trading firms did not try to sell their surpluses. The second is why the firms that traded some allowances kept surplus allowances in the end. Answering these questions might help understanding whether trading transaction costs were one of the reasons that ‘challenged’ this behaviour.

The sixteen firms that did not trade were asked why they chose not to participate in the market. Fourteen of them responded (7 of which had allowance surpluses), that they had been able to meet their $ CO_{2} $ obligations without engaging in trading. None of the respondents reported that $ CO_{2} $ abatement was cheaper than buying allowances or that trading was too expensive. In addition, none of the respondents mentioned transaction costs as a factor discouraging trading.

Non-trading firms also had an opportunity to provide further comments about their non-participation in trade. These comments underline their uncertainty about the first period allocation, and their recognition of the first period allowance price collapse. One firm noted that it maintained an allowance surplus because it was not sure about the extra allocation it would receive from the new entrants' reserve for an expansion of capacity. Other respondents commented that the allowance price was too low at the end of the period when the surplus was evident to bother with trading. Interestingly, some respondents noted that they had considered transferring allowances to affiliated installations outside Ireland that were under common ownership, but they did not do so because the outside operators also had allowance surpluses.

The eleven respondents that did engage in trading (6 sold and 5 bought) were asked who their trading partners had been. Four firms responded that they had traded only with other Irish installations inside their own business group, and a one firm traded with domestic and foreign installations in the same business group. Another respondent that was over-compliant traded both with installations inside its business group and via financial institutions. The other five (including two over-compliant respondents) traded with financial institutions, mainly commercial banks. Some of the firms that performed allowance trades within their domestic business group regarded this action as a transfer, not as a trade, which might imply that these transfers did not incur any transaction costs.