Coase and Cap-and-Trade: Evidence on the Independence Property from the European Carbon Market

I examine the Coasean independence property in a large multinational cap-and-trade scheme for greenhouse gas emissions, EU Emissions Trading System. analyze whether emissions of power producers are independent from allowance allocations by leveraging change allocation policy difference-in-difference strategy. The evidence suggests that holds overall and larger emitters firms respond to loss increasing purchases. Suggestive small indicates trading costs or behavioral bias distorts their emission decisions. However, share leaves intact at sector level. (JEL L94, L98, Q48, Q51, Q54, Q58)