Assessing the Transaction Costs of Firms in the EU ETS : Lessons from Ireland

This paper measures the transaction costs incurred by Irish firms under the European Union's CO2 Emissions Trading Scheme (EU ETS) during its pilot phase (2005 - 2007). Our analysis provides evidence that such costs were mainly administrative in nature. We emphasize the existence of sizeable economies of scale, as the costs per tonne of CO2 were lower for participants with larger allocations. Trading costs were not significant and, hence, not trade inhibitive. Other factors, self-sufficiency in compliance and low allowance prices, played a major role in the decision whether to trade or not during this phase