This paper exploits a little used data resource within the central registry of the European Unions Emissions Trading System (EU ETS) to analyze cross border trading and inter-year borrowing during the first trading period (2005- 2007). Cross-border flows were small in the aggregate but remarkably frequent in matching allowance deficits and surpluses at the installation level throughout the EU. These data also indicate that a novel feature of the EU ETSthe ability to borrow allowances from the forward allocation to satisfy current compliance requirementswas also used. These data provide evidence that the precondition of efficient abatement in a cap-and-trade systemwidespread use of trading opportunitieswas present in the first period of the EU ETS.

© 2009 International Association for Energy Econmics