Price relationships in the EU emissions trading system
AbstractThe 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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Date of creation: 22 Feb 2010
Date of revision:
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Kyoto Protocol; Clean Development Mechanism; EU Emissions Trading Scheme; Greenhouse Gases Reductions; Emissions Markets; CDM; EU ETS;
Other versions of this item:
- Chevallier, Julien, 2011. "Price relationships in the EU emissions trading system," Economics Papers from University Paris Dauphine 123456789/4612, Paris Dauphine University.
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-06 (All new papers)
- NEP-ENE-2010-03-06 (Energy Economics)
- NEP-ENV-2010-03-06 (Environmental Economics)
- NEP-EUR-2010-03-06 (Microeconomic European Issues)
- NEP-REG-2010-03-06 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Emilie Alberola & Julien Chevallier, 2009.
"European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007),"
The Energy Journal,
International Association for Energy Economics, vol. 0(Number 3), pages 51-80.
- 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.
- Julien Chevallier, 2010. "Carbon Prices during the EU ETS Phase II: Dynamics and Volume Analysis," Working Papers halshs-00459140, HAL.
- Chevallier, Julien, 2013.
"Variance risk-premia in CO2 markets,"
Elsevier, vol. 31(C), pages 598-605.
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