Pollution for Sale : Lobbying, Allowance Allocation and Firm Outcomes in the EU ETS

This paper studies the relationship between lobbying, free emission allowance allocation and firm outcomes in the European Union Emissions Trading System (ETS). I draw on administrative data from the EU Transpareny Register (TR) and the European Union Transaction Log (EUTL), and construct a unique measure of ETS-related lobbying effort using a novel dataset containing European Commission (EC) meetings topics from the TR. I then examine the relationship between allowance allocation and lobbying. Using a Generalized Method of Moments (GMM) estimation strategy, I establish a robust positive link between lobbying and the number of free emission allowances. I find that the marginal returns to lobbying are between about 1 and 4.6 euros earned per euro spent on lobbying (depending on which ETS price is used). Exploiting the Commissions’ cutoff of eligibility in trade intensity for allocation as a regression discontinuity (RDD), I estimate the effect of being allocated free emission allowances on firm outcomes (net profits and net sales), and find statistical evidence that allocation is a valuable target for lobbying. Allocation increases net profits by 902 million and net sales by 21,641 million Euros sector-wide, at the 1% significance level