Carbon Management - Evidence from Case Studies of German Firms under the EU ETS

The European Emissions Trading Scheme (EU ETS) is a key element of European climate policy. In Germany, the EU ETS currently regulates greenhouse gas emissions of about 800 companies. The regulated companies differ strongly with respect to size, production processes and the amount of emitted CO2. This discussion paper examines strategies and management practices related to compliance with the scheme's obligations. Based on structured in-depth interviews with managers, the practices of six highly different firms are illustrated and analysed against the backdrop of the results of surveys amongst regulated firms in Germany.

Management practices differ strongly between firms and are dependent on existing organisational structures, the production process, the level of emissions and the level of free allocation. Large emitters and companies of the energy sector are able to revert to existing organisational structures in order to trade emission allowances frequently. In contrast to this, small emitters of CO2 and companies of the manufacturing industry behave more passively and rely on services of intermediaries in order to minimise transaction costs. Even in large companies, monitoring, reporting and verification (MRV) is organised decentralised. The costs arising due to MRV are a burden particularly for small emitters. Large emitters develop abatement technology in-house, while small emitters buy and adopt new technologies developed by mechanical and plant engineering firms. The interviews as well as the results of the surveys show how different the institutional responses to the regulation by the EU ETS can be. The fact that regulated companies face highly different conditions leads to a situation where some firms face relatively high organisational burdens from regulation. Therefore, optimal choice and design of regulation should take heterogeneity of regulated firms into account.

Heindl, Peter and Benjamin Johannes Lutz (2012), Carbon Management - Evidence from Case Studies of German Firms under the EU ETS, ZEW Discussion Paper No. 12-079, Mannheim.