Data Entry: Please note that the research database will be replaced by UNIverse by the end of October 2023. Please enter your data into the system https://universe-intern.unibas.ch. Thanks
Home Country Bias in International Emissions Trading: Evidence From the EU ETS
Series title
WWZ Working Paper
Volume
2022
Number
07
Pages
38
Publisher / Institution
WWZ
Keywords
Emission permit market, EU ETS, transactions costs, gravity model, home bias
Abstract
We examine the pattern of allowance trades in the European Union Emissions Trading System (EU ETS) using highly disaggregated trading data and identify a significant and robust home market bias. Our results point to informational transactions costs that increase when trading across national borders. The existing trade pattern in goods and services explains two thirds of the home bias, with the remainder due to other causes. Our finding suggests that firms make use of existing trade networks to overcome search costs in bilateral allowance trade. Since the home bias differs across firms, it follows that marginal abatement costs are not equalized across market participants of the EU ETS.
