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The European carbon market (2005-2007): banking, pricing and risk-hedging strategies

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  • Julien Chevallier

    ()
    (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre)

Abstract

At the stage of international post-Kyoto negotiations, the adoption of ambitious public policies raises an increasing interest, as society has a whole is more concerned by the scale of damages and the potential irreversibility linked to climate change. The introduction of a tradable permits market in Europe on January 1, 2005, in order to provide incentives to Member-States to take early abatement measures, may be seen as a decisive first step towards that direction. The creation of the EU ETS has indeed revealed the key role played by the European Union in the preservation of the global public good that constitutes the climate. This article reviews the market rules of the European carbon market during 2005-2007. More particularly, it synthesizes theoretical and empirical analyses of banking and borrowing provisions, price drivers and risk-hedging strategies attached to tradable quotas, which were introduced to cover the CO2 emissions of around 10,600 installations in Europe.

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Paper provided by HAL in its series Working Papers with number halshs-00458787.

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Date of creation: 22 Feb 2010
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Handle: RePEc:hal:wpaper:halshs-00458787

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Keywords: Climate Change Policy; Emissions Trading; EU ETS; European carbon market; Banking Borrowing; Carbon Pricing; Spot Prices; Futures Prices; Option Prices; Risk-Hedging Strategies;

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  1. Chevallier, Julien & Ielpo, Florian & Mercier, Ludovic, 2009. "Risk aversion and institutional information disclosure on the European carbon market : a case-study of the 2006 compliance event," Economics Papers from University Paris Dauphine 123456789/4221, Paris Dauphine University.
  2. Hayne E. Leland., 1979. "Who Should Buy Portfolio Insurance?," Research Program in Finance Working Papers 95, University of California at Berkeley.
  3. 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.
  4. A. Ellerman & Barbara Buchner, 2008. "Over-Allocation or Abatement? A Preliminary Analysis of the EU ETS Based on the 2005–06 Emissions Data," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 41(2), pages 267-287, October.
  5. Alberola, Emilie & Chevallier, Julien & Cheze, Benoi^t, 2008. "Price drivers and structural breaks in European carbon prices 2005-2007," Energy Policy, Elsevier, vol. 36(2), pages 787-797, February.
  6. Julien Chevallier & Johanna Etner & Pierre-André Jouvet, 2008. "Bankable Pollution Permits under Uncertainty and Optimal Risk Management Rules: Theory and Empirical Evidence," EconomiX Working Papers 2008-25, University of Paris West - Nanterre la Défense, EconomiX.
  7. Roll, Richard, 1984. "Orange Juice and Weather," American Economic Review, American Economic Association, vol. 74(5), pages 861-80, December.
  8. Maria Mansanet-Bataller & Angel Pardo & Enric Valor, 2007. "CO2 Prices, Energy and Weather," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 73-92.
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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.

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