ESSAYS ON FIRMS’ BEHAVIORS IN THE EUROPEAN UNION EMISSION TRADING SCHEME (EU ETS)
Creators: name: Xu, Yifei
Publisher: name: Purdue University Graduate School
Year: 2020
Subjects: Other economics not elsewhere classified

description: This dissertation consists of three chapters about the European Union Emissions Trading Scheme (EU ETS). All chapters contributes to the scarce but recently great developing literature on installation and firm-level studies in the EU ETS. The first chapter evaluates the policy effectiveness and efficiency by theoretical modelling andempirical assessment of firms’ emission abatement activities. The second chapter overviews the global emission trading market, documents the institutional backgroundof emission trading, and analyzes firms’ emission trading patterns in light of the broader empirical literature. The last chapter studies productivity and firms’ emissionpermit trading behaviors by considering a complete set of options. In the first chapter, I investigate how firms reduce emissions under continuous adjustment of the policy by using the implementation of the three phases of EU ETSas a cost shock. I develop a model of emission abatement with heterogeneous firms by introducing two channels: Reallocation and Investment which incur variable andfixed abatement costs respectively. More productive firms are cleaner as they put more effort on Investment. However, the policy effect is ambiguous driven by the magnitudeand correlation of the proposed abatement technology parameters, which highlights the importance of the current abatement technology for firms’ responses to climatepolicy. I then empirically test the model by using a novel dataset that matches firms’ financial, production and emission data. In addition to providing the elasticity ofemission intensity, the elasticity of Reallocation and Investment, the model enabled me to estimate the firm’s abatement technology parameters and decompose the emissions into the proposed two channels. The results indicate that firms have a higher efficiency on abatement in utilizing of inputs than green technology investment. The emission change is primarily driven by the channel of Reallocation and is concentrated in non-metallicmineral companies. The green innovation is limited under the policy with a small emission intensity decrease even though there is large emission reductions. The second chapter reviews the global rise of emission trading, documents the institutional background of emission trading, and summarizes firms’ emission trading patterns. To the best of my knowledge, this study is one of the first to empirically analyze the trading behaviors of all ETS firms covering all three phases in the EU ETS. I use two micro-level datasets to investigate the permit trading behaviors of all types of trading in the market, including international offset permits. Some explanations of the identified trading patterns are provided in this paper. Additionally, this study also discusses the patterns in light of the broader empirical literature. The last chapter contributes to the literature on the firms’ permit trading behaviors. The development of the EU ETS has complicated firms’ decisions around carbon trading and offered firms more options to offset emissions. We provide a first look at the determinants behind firms’ participation in the EU ETS as well as their trading behaviors by considering a complete portfolio of permit trade marketsin the EU ETS. Based on a comprehensive permit transaction dataset linked with individual level firm’s characteristics, we quantitatively analyze firms’ participationdecisions and trading patterns. We focus on the impact of firms’ productivity, endowment position, and endowment value on market choice and trading amount. Ourresults suggest that productive firms are more likely to participate in permits trading and to purchase the permits in the secondary and international markets. Conditionalon firms’ market choice, the permit trading amount is also correlated with a firm’s productivity and endowment value. In addition, firms in power and energy sector aremore likely to participate in permit trading than other manufacturing firms. Overall, the empirical results indicate that less productive firms have disadvantages competingin the permit trade market.