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Price relationships in the EU emissions trading system

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Author Info

  • Chevallier, Julien

Abstract

The Emissions Trading Scheme (ETS) constrains industrial polluters to buy/sell CO2 allowances depending on a regional depolluting objective of -8% of CO2 emissions by 2012 compared to 1990 levels. Companies may also buy carbon offsets from developing countries, funding emissions cuts there instead, under a Kyoto Protocol Clean Development Mechanism (CDM). This article critically analyzes the price relationships in the EU emissions trading system. The United Nations Framework Convention on Climate Change (UNFCCC) delivers credits that may be used by European companies for their compliance needs. Certified Emissions Reductions (CERs) from CDM projects are credits flowing into the global compliance market generated through emission reductions. EUAs (EU Allowances) are the tradable unit under the EU ETS. Besides, the EU Linking Directive allows the import for compliance into the EU ETS up to 13.4% of CERs on average. This article details the idiosyncratic risks affecting each emissions market, be it in terms of regulatory uncertainty, economic activity, industrial structure, or the impact of other energy markets. Besides, based on a careful analysis of the EUA and CER price paths, we assess common risk factors by focusing more particularly on the role played by the CER import limit within the ETS.

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Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/4612.

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Date of creation: 2011
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Publication status: Published in Green Finance and Sustainability : Environmentally-Aware Business Models and Technologies, . pp. 212-220.Length: 8 pages
Handle: RePEc:dau:papers:123456789/4612

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Related research

Keywords: Emissions Markets; Greenhouse Gases Reductions; EU Emissions Trading Scheme; Clean Development Mechanism; Kyoto Protocol; EU ETS; CDM;

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  1. Emilie Alberola & Julien Pierre Chevallier, 2007. "European carbon prices and banking restrictions: evidence from phase I (2005-2007)," EconomiX Working Papers 2007-32, University of Paris West - Nanterre la Défense, EconomiX.
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Cited by:
  1. Julien Chevallier, 2010. "Carbon Prices during the EU ETS Phase II: Dynamics and Volume Analysis," Working Papers halshs-00459140, HAL.
  2. Chevallier, Julien, 2013. "Variance risk-premia in CO2 markets," Economic Modelling, Elsevier, vol. 31(C), pages 598-605.

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