Coase and Cap-and-Trade: Evidence on the Independence Property from the European Carbon Market

No 1925, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper tests the independence property under the Coase Theorem in a large multinational cap-and-trade scheme for greenhouse gas emissions, the EU Emissions Trading System (EU ETS). I analyze whether emissions of power producers regulated under the EU ETS are independent from allowance allocations, leveraging a change in allocation policy for a difference-in-differences strategy. The evidence suggests that the independence property holds overall and for larger emitters. It fails for small emitters, indicating that transaction costs distort their emission decisions. However, due to their small share of aggregate emissions the independence property remains intact at the sector level.

Keywords: Coase theorem; independence property; cap-and-trade; EU ETS; greenhouse gas emissions (search for similar items in EconPapers)
JEL-codes: L94 Q52 Q54 Q58 (search for similar items in EconPapers)
Pages: 42 p.
Date: 2021
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Coase and Cap-and-Trade: Evidence on the Independence Property from the European Carbon Market (2023)
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