Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215423 
Year of Publication: 
2020
Series/Report no.: 
DIW Discussion Papers No. 1850
Version Description: 
This version: March 2020
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
This paper provides an empirical test of the Coase Theorem. I analyze whether emissions are independent from allowance allocations in the electricity sector regulated under the EU's Emissions Trading System (EU ETS). Exogenous variation in levels of free allocation for power producing installations enables a difference-in-differences strategy. The analysis reveals that a change in allocation levels does not significantly affect emissions, either at the plant or firm level. However, I identify an adjustment period with temporarily lower emissions for some firms. The results suggest that policy makers may use free allocation as a political tool without compromising the program's costeffectiveness.
Subjects: 
Coase theorem
independence property
cap-and-trade
EU ETS
greenhouse gas emissions
JEL: 
Q54
Q58
Q52
L94
Document Type: 
Working Paper

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