Impacts of Emissions Trading on a Company Under Uncertain Multi-Period Environment

Abstract

Emissions trading within the Emissions Trading Scheme of the European Union (EU ETS) influences European industrial companies since 2005. The companies must choose their strategy, how to reduce the costs of emissions allowances. The changing system's conditions and volatile price of allowances make this decision very tough. Moreover, the effect of this system on companies still increases as the policy-makers want to increase its efficiency, and the emission price increases. Despite several studies devoted to the relationship between the EU ETS and companies have already been published, there is still a gap in this field. Authors usually use the stochastic approach, which is not always applicable and it reveals the expected future result. In this paper, the potential range of impact of emissions trading is explored. Namely, the multi-period fuzzy possibilistic programming model is developed to reveal possible costs of emissions trading, optimal strategy on allowances and effect of banking the allowances for hedging against the risk. The model is verified using the data of a real-life industrial company. The results show that the costs of emissions trading are perceptible for the company and they can be reduced by up to 6% using banking.