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Seminar

Inefficient trading of carbon credits


  • Series
    Erasmus Finance Seminars
  • Speaker
    Bart Zhou Yueshen (Singapore Management University)
  • Field
    Finance, Accounting and Finance
  • Location
    Erasmus University Rotterdam, Campus Woudestein, Polak 2-20
    Rotterdam
  • Date and time

    June 17, 2024
    11:45 - 13:00

Please note: this seminar takes place on a Monday.

Abstract
The EU Emission Trading System allocates carbon credits to firms via auctions in the primary market and allows them to subsequently trade with each other in the secondary market. In equilibrium, the secondary-market trading can be inefficient, both in terms of emission and productivity: The secondary market re-allocates credits according to firms' post-auction productivity shocks but ignores emission externality and the concentration of market power. Shutting down the secondary market could mitigate the inefficiency but at the cost firms' incentive to abate emission. Instead, we propose that the government should directly participate in the secondary market.