Report on the impact of transaction costs, adoption of technologies and the interaction with EMS

The ENTRACTE research project aims to analyse the European climate policy portfolio with special emphasis on the role of interactions between different policy instruments. The project’s ultimate goal is to provide pragmatic guidance to policy makers for designing effective, cost efficient and politically and legally feasible climate policy portfolios.

This report examines marginal and average prices per unit of greenhouse gas emissions under presence of administrative transaction costs for monitoring, reporting, and verification in the EU Emissions Trading Scheme. The consequences of transaction costs on marginal prices are moderate. This implies that no substantial distortions are caused by the presence of administrative transaction costs. Average prices are highly influenced by transaction costs, causing considerable economies of scale and associated disadvantages for smaller firms. Thus, there are options to increase administrative efficiency of the scheme by means of upstream orientated reform.

Author: Peter Heindl