Green Markets

EWN Publishing

Many large corporations able to escape need to trade emissions due to limited number of installations and over-allocation of allowances

Posted by gmarkets on 27 September, 2007

The empirical analysis of 331 Global 500 firms sug­gests that the EU-ETS forms the most prominent scheme and, as a consequence, most firms have their emissions trading activities linked to this scheme, according to Pinkse, J. and Kolk, A., in ‘Multinational Corporations and Emissions Trading’ in European Management Journal (2007).

No need to trade: Firms covered by the EU-ETS generally conform to the institutional constraint for compliance. However, the cap on emissions seems more important than the trading facility. Since many firms are included with a few installations only and overall emission allow­ances have been over-allocated, many large corporations have been able to escape the need to trade.

Energy producers, banks hold influence: As the EU-­ETS is still forming, there have been quite some opportunities for institutional agency. Over the past years, energy producers appear to have been most successful in shaping the EU-ETS, but this has cre­ated unease on the part of large energy consumers, who may become institutional entrepreneurs them­selves in response. Of the firms not affected directly, particularly banks have been able to reshape the emission market by facilitating trading of others. Corporate activities in other, more local trading schemes are almost negligible, but may be of political significance in stimulating countries without a domestic trading scheme to set one up.

Many global firms avoid trading: Findings also show that even though a considerable number of global firms has become engaged in emissions trading, many still avoid it. For these firms emissions trading is either not relevant or they are not covered by the EU-ETS and do not wish to become part of a volun­tary scheme. Nevertheless, such avoidance is no guarantee that firms will not have to deal with emis­sions trading in the near future, because trading schemes are gaining ground all over the world.

Managers need to have a clue on trading: Findings of this paper exemplify how crucial it is for managers to be aware of the development of emis­sions trading schemes. Otherwise, the high pace in recent policy developments may take them by sur­prise. Even if firms are currently not covered by a trading scheme, a potentially strong constraint of upcoming schemes should arouse firms to anticipate these as early as possible. It may thus be sensible to turn into institutional entrepreneurs — this seems to have paid off for electricity firms in the EU — instead of becoming dependent on institutional arbitrageurs who shape the institution to fit their own interests.

Reference: Pinkse, J. and Kolk, A., Multinational Corporations and Emissions Trading; European Management Journal (2007) doi:10.1016/j.emj.2007.07.03

Erisk Net, 27/9/2007

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