Many firms are participating in the EU Emissions Trading Scheme or
considering a trading strategy
EXECUTIVE SUMMARY
This article explores MNCs’ strategic responses to emissions trading schemes. Of 331 of the 500 largest
companies in 2006, 72 were involved in the EU-ETS emissions trading scheme, 62 were considering trading, and
65 had no trading strategy. Many firms participated because they faced emissions caps and non-compliance
penalties; some were waiting for clarity on trading rules before acting, while still others did not want to be part of
a voluntary scheme. Firms may benefit from considering their role in emissions trading early to stay ahead of
regulation and competition.
BACKGROUND
The EU-ETS was developed in 2005 in Europe and by
2006 was the world’s most prominent trading scheme.
It placed constraints on many EU companies and their
subsidiaries. Other schemes included the UK-ETS,
NSW, RGCI and Chicago Climate Exchange. Credits
have also been traded under the Clean Development
Mechanism or Joint Implementation mechanisms of
the Kyoto Protocol.
FINDINGS
Of 331 of the 500 largest companies surveyed in 2006:
• 72 firms participated in the EU-ETS (51 in Europe,
21 in North America). Many participated due to
emissions caps and non-compliance penalties, and
engaged in occasional trading to obtain allowances.
• 62 firms were considering emissions trading (11 in
Europe, 35 in North America, and 16 in Asia and
Oceania). Most wanted more clarity on the exact
trading rules before taking action.
• 65 firms had no emissions trading strategy (12 in
Europe, 44 in North and Latin America, and 9 in
Asia and Oceania). Firms either a) did not want to
join a voluntary scheme; b) did not think their
operations were energy intensive; or c) perceived
administration costs of selling surplus allowances as
too high.
• Energy producers were highly involved in trading
and were the most successful at shaping the EU-ETS.
Active traders included E.ON, Suez, Shell and ENI.
• Banks were highly involved in trading, considering
they were not forced to participate. Banks facilitated
trading since most firms lacked experience and
needed financial middlemen. For example, Barclays
set up the first carbon trading desk, created contracts
and helped guide new players.
IMPLICATIONS FOR MANAGERS
• Become aware of current and upcoming trading
schemes. Determine if and how they will affect your
firm.
• Consider the geographic spread of your business. Are
emissions trading schemes or regulations emerging
in countries where you operate?
• Consider participation early to stay ahead of
regulation and competition.
• Determine if your firm wants to participate in policy
discussions through plans for the 2nd phase of the
EU-ETS or upcoming schemes in Canada, Japan,
U.S., Australia and Korea.
IMPLICATIONS FOR RESEARCHERS
We suggest research follow how firms respond
strategically in the coming years as emissions trading
becomes more widespread.
METHODS
This study looks at the strategic responses of 331 Global
500 companies using a questionnaire from the 2006
Carbon Disclosure Project. Companies are mainly from
the U.S, Europe, Japan, Canada and Switzerland.
Industries include banks, oil and gas, electricity,
insurance, IT retailers, telecommunication,
pharmaceuticals, automotives, electronics and utilities.
CITATION
Pinkse, Jonatan, & Kolk, Ans. (2007). Multinational
Corporations and Emissions Trading: Strategic
Responses to New Institutional Constraints. European
Management Journal, 25(6): 441-452. Full article
source.
SUMMARIZED BY
Lauren Rakowski & The Network Team
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