Banking and Borrowing in the EU ETS: An Econometric Appraisal of the 2005-2007 Intertemporal Market
AbstractThis article critically examines the EU ETS intertemporal market during its Phase I (2005-2007). We test the Hotelling rule as a key element of a competitive equilibrium to validate whether allowance prices rise at the same rate as the interest rate. Including readily observable characteristics of the EU ETS such as the presence of one endogenous structural break and the influence of other energy markets shocks, we argue the inter-period ban on banking undermines the ability of the EU ETS to provide efficient price signalling. We also find a significant relationship between allowance price changes and the expected scarcity of allowances approximated by the Ellerman-Parsons ratio. Finally, our results show evidence of institutional learning by market participants.
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Date of creation: 26 May 2009
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Emissions trading; Banking; EU ETS; Hotelling rule; Ellerman-Parsons Ratio;
Other versions of this item:
- Alberola, Emilie & Chevallier, Julien, 2009. "Banking and Borrowing in the EU ETS: An Econometric Appraisal of the 2005-2007 Intertemporal Market," Economics Papers from University Paris Dauphine 123456789/4599, Paris Dauphine University.
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-30 (All new papers)
- NEP-BAN-2009-05-30 (Banking)
- NEP-EEC-2009-05-30 (European Economics)
- NEP-ENE-2009-05-30 (Energy Economics)
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