IDEAS home Printed from https://ideas.repec.org/a/oup/cambje/v41y2017i2p575-593..html
   My bibliography  Save this article

Transactions in the European carbon market: a bubble of compliance in a whirlpool of speculation

Author

Listed:
  • Nathalie Bertanathalie
  • Emmanuelle Gautherat
  • Ozgur Gun

Abstract

The European Union Emissions Trading Scheme (EU ETS) is supposed to help regulated installations to cover their CO2 emissions by trading in allowances. In practice, the EU ETS is mainly a financial market used for hedging and speculation. This financial feature is regarded as a solution (hedging and liquidity) to a problem (the price risk and volatility imposed on installations) which the market has actually created itself. This paper provides an estimation of the real underpinning of the scheme, i.e. the needs of installations for allowances transfers to achieve compliance in the two first exchange periods. This estimation, which was singularly lacking in the literature, shows that compliance transactions become more and more marginal as market activity grows, and they are drowned in a whirlpool of speculation. This challenges the role of the carbon price, whether it reveals a financial and self-referential evaluation rather than the installations’ marginal abatement costs, the condition of cost-effectiveness expected from carbon trading.

Suggested Citation

  • Nathalie Bertanathalie & Emmanuelle Gautherat & Ozgur Gun, 2017. "Transactions in the European carbon market: a bubble of compliance in a whirlpool of speculation," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 41(2), pages 575-593.
    • Handle: RePEc:oup:cambje:v:41:y:2017:i:2:p:575-593.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/cje/bew041
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dan Nie & Yanbin Li & Xiyu Li & Xuejiao Zhou & Feng Zhang, 2022. "The Dynamic Spillover between Renewable Energy, Crude Oil and Carbon Market: New Evidence from Time and Frequency Domains," Energies, MDPI, vol. 15(11), pages 1-28, May.
    2. Adekoya, Oluwasegun B. & Oliyide, Johnson A. & Noman, Ambreen, 2021. "The volatility connectedness of the EU carbon market with commodity and financial markets in time- and frequency-domain: The role of the U.S. economic policy uncertainty," Resources Policy, Elsevier, vol. 74(C).
    3. Stephan Schulmeister, 2020. "Fixing long-term price paths for fossil energy: the optimal incentive for limiting global warming," ICAE Working Papers 112, Johannes Kepler University, Institute for Comprehensive Analysis of the Economy.
    4. Stephan Schulmeister, 2019. "Keynes und die Finanzmärkte. Auf halbem Weg vom "homo oeconomicus" zum "homo humanus"," WIFO Working Papers 588, WIFO.
    5. Forbes, Kevin F. & Zampelli, Ernest M., 2019. "Wind energy, the price of carbon allowances, and CO2 emissions: Evidence from Ireland," Energy Policy, Elsevier, vol. 133(C).
    6. Carratù, Maria & Chiarini, Bruno & Piselli, Paolo, 2020. "Effects of European emission unit allowance auctions on corporate profitability," Energy Policy, Elsevier, vol. 144(C).
    7. Tan, Xueping & Sirichand, Kavita & Vivian, Andrew & Wang, Xinyu, 2020. "How connected is the carbon market to energy and financial markets? A systematic analysis of spillovers and dynamics," Energy Economics, Elsevier, vol. 90(C).
    8. Friedrich, Marina & Mauer, Eva-Maria & Pahle, Michael & Tietjen, Oliver, 2020. "From fundamentals to financial assets: the evolution of understanding price formation in the EU ETS," EconStor Preprints 196150, ZBW - Leibniz Information Centre for Economics, revised 2020.
    9. repec:crb:wpaper:2023-01 is not listed on IDEAS
    10. Tan, Xueping & Sirichand, Kavita & Vivian, Andrew & Wang, Xinyu, 2022. "Forecasting European carbon returns using dimension reduction techniques: Commodity versus financial fundamentals," International Journal of Forecasting, Elsevier, vol. 38(3), pages 944-969.

    More about this item

    Keywords

    European Union Emissions Trading Scheme; Carbon market; CO2 allowance; Carbon finance;
    All these keywords.

    JEL classification:

    • B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:cambje:v:41:y:2017:i:2:p:575-593.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/cje .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.