Purdue University Graduate School
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posted on 2020-08-05, 19:09 authored by Yifei XuYifei Xu
This dissertation consists of three chapters about the European Union Emissions Trading Scheme (EU ETS). All chapters contributes to the scarce but recently great developing literature on installation and firm-level studies in the EU ETS. The first chapter evaluates the policy effectiveness and efficiency by theoretical modelling and
empirical assessment of firms’ emission abatement activities. The second chapter overviews the global emission trading market, documents the institutional background
of emission trading, and analyzes firms’ emission trading patterns in light of the broader empirical literature. The last chapter studies productivity and firms’ emission
permit trading behaviors by considering a complete set of options. In the first chapter, I investigate how firms reduce emissions under continuous adjustment of the policy by using the implementation of the three phases of EU ETS
as a cost shock. I develop a model of emission abatement with heterogeneous firms by introducing two channels: Reallocation and Investment which incur variable and
fixed abatement costs respectively. More productive firms are cleaner as they put more effort on Investment. However, the policy effect is ambiguous driven by the magnitude
and correlation of the proposed abatement technology parameters, which highlights the importance of the current abatement technology for firms’ responses to climate
policy. I then empirically test the model by using a novel dataset that matches firms’ financial, production and emission data. In addition to providing the elasticity of
emission intensity, the elasticity of Reallocation and Investment, the model enabled me to estimate the firm’s abatement technology parameters and decompose the emissions into the proposed two channels. The results indicate that firms have a higher efficiency on abatement in utilizing of inputs than green technology investment. The emission change is primarily driven by the channel of Reallocation and is concentrated in non-metallic
mineral companies. The green innovation is limited under the policy with a small emission intensity decrease even though there is large emission reductions. The second chapter reviews the global rise of emission trading, documents the institutional background of emission trading, and summarizes firms’ emission trading patterns. To the best of my knowledge, this study is one of the first to empirically analyze the trading behaviors of all ETS firms covering all three phases in the EU ETS. I use two micro-level datasets to investigate the permit trading behaviors of all types of trading in the market, including international offset permits. Some explanations of the identified trading patterns are provided in this paper. Additionally, this study also discusses the patterns in light of the broader empirical literature. The last chapter contributes to the literature on the firms’ permit trading behaviors. The development of the EU ETS has complicated firms’ decisions around carbon trading and offered firms more options to offset emissions. We provide a first look at the determinants behind firms’ participation in the EU ETS as well as their trading behaviors by considering a complete portfolio of permit trade markets
in the EU ETS. Based on a comprehensive permit transaction dataset linked with individual level firm’s characteristics, we quantitatively analyze firms’ participation
decisions and trading patterns. We focus on the impact of firms’ productivity, endowment position, and endowment value on market choice and trading amount. Our
results suggest that productive firms are more likely to participate in permits trading and to purchase the permits in the secondary and international markets. Conditional
on firms’ market choice, the permit trading amount is also correlated with a firm’s productivity and endowment value. In addition, firms in power and energy sector are
more likely to participate in permit trading than other manufacturing firms. Overall, the empirical results indicate that less productive firms have disadvantages competing
in the permit trade market.


Degree Type

  • Doctor of Philosophy


  • Economics

Campus location

  • West Lafayette

Advisor/Supervisor/Committee Chair

Chong Xiang

Additional Committee Member 2

Dominique Y van der Mensbrugghe

Additional Committee Member 3

Anson Soderbery

Additional Committee Member 4

Farid Farrokhi

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