Transaction Costs for Swedish Actors Participating in the European Trading Scheme

University essay from Handelshögskolan i Stockholm/Institutionen för nationalekonomi

Abstract: On January the 1st 2005 the European Union Emission Trading Scheme (ETS) took effect. The idea of the scheme is to minimize the marginal control cost for carbon dioxide emission reduction through trade with transferable permits. As a member of the European Union, Sweden is subject to the rules and regulations of the ETS. In this thesis, we empirically investigate what the ETS has implied for Swedish actors during January – December 2005. Of special interest are the transaction costs of ETS, which we investigate and estimate. We find that the ETS seems to be rather cost effective in terms of transaction costs considering that the market is still immature. We also find actors allocated few permits in the scheme appear to be inactive in trade. One plausible explanation is that the transaction costs for these actors are much higher relative to the other actors. Opting out this group from the scheme would not have a great influence on the total level of emission in Sweden, nor on the total size of the transaction costs. One alternative way of minimizing the ETS transaction costs would be to use auctioning as an allocation method for the transferable permits.

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