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Banking and Borrowing in the EU ETS: A Review of Economic Modelling, Current Provisions and Prospects for Future Design

  • Chevallier, Julien

This article deals with the issue of banking and borrowing in the context of the European Union Emissions Trading Scheme (EU ETS) by attempting to provide a policy-oriented unifying theoretical framework. After describing the main features of the EU ETS, the core part of the article consists of variations of an inter-temporal continuous time optimization model. Additional elements include flexibility measures currently discussed and proposed in other emissions trading systems (USA, Australia), which include the use of safety valves, minimum price auctioning or offsets from domestic or international projects.

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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/4611.

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Date of creation: 2012
Date of revision:
Publication status: Published in Journal of Economic Surveys, 2012, Vol. 26, no. 1. pp. 157-176.Length: 19 pages
Handle: RePEc:dau:papers:123456789/4611
Contact details of provider: Web page: http://www.dauphine.fr/en/welcome.html

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  1. Schleich, Joachim & Ehrhart, Karl-Martin & Hoppe, Christian & Seifert, Stefan, 2006. "Banning banking in EU emissions trading?," Energy Policy, Elsevier, vol. 34(1), pages 112-120, January.
  2. 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.
  3. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  4. Eirik Amundsen & Fridrik Baldursson & Jørgen Mortensen, 2006. "Price Volatility and Banking in Green Certificate Markets," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 35(4), pages 259-287, December.
  5. Robert N. Stavins, 1998. "What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 69-88, Summer.
  6. Jacoby, Henry D. & Ellerman, A. Denny, 2004. "The safety valve and climate policy," Energy Policy, Elsevier, vol. 32(4), pages 481-491, March.
  7. Bosetti, Valentina & Carraro, Carlo & Massetti, Emanuele, 2008. "Banking Permits: Economic Efficiency and Distributional Effects," CEPR Discussion Papers 6652, C.E.P.R. Discussion Papers.
  8. Kling, Catherine & Rubin, Jonathan, 1997. "Bankable permits for the control of environmental pollution," Journal of Public Economics, Elsevier, vol. 64(1), pages 101-115, April.
  9. Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
  10. Richard Newell & William Pizer & Jiangfeng Zhang, 2005. "Managing Permit Markets to Stabilize Prices," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(2), pages 133-157, 06.
  11. Meghan McGuinness & Raphael Trotignon, 2007. "Technical Memorandum on Analysis of the EU ETS Using the Community Independent Transaction Log," Working Papers 0712, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  12. Hahn, Robert W., 1982. "Market Power and Transferable Property Rights," Working Papers 402, California Institute of Technology, Division of the Humanities and Social Sciences.
  13. Valentina Bosetti & David Tomberlin, 2004. "Fondazione Eni Enrico Mattei," Working Papers 2004.102, Fondazione Eni Enrico Mattei.
  14. Stuart Mestelman & Andrew Muller, 1997. "Emissions Trading with Shares and Coupons when Control over Discharges is Uncertain," McMaster Experimental Economics Laboratory Publications 1997-01, McMaster University.
  15. Matti Liski & Juan-Pablo Montero, 2006. "On Pollution Permit Banking and Market Power," Journal of Regulatory Economics, Springer, vol. 29(3), pages 283-302, 05.
  16. Schennach, Susanne M., 2000. "The Economics of Pollution Permit Banking in the Context of Title IV of the 1990 Clean Air Act Amendments," Journal of Environmental Economics and Management, Elsevier, vol. 40(3), pages 189-210, November.
  17. Paul Leiby & Jonathan Rubin, 2001. "Intertemporal Permit Trading for the Control of Greenhouse Gas Emissions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(3), pages 229-256, July.
  18. Tobias Kronenberg, 2008. "Should We Worry About The Failure Of The Hotelling Rule?," Journal of Economic Surveys, Wiley Blackwell, vol. 22(4), pages 774-793, 09.
  19. Grubb, M. & Neuhoff, K., 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Cambridge Working Papers in Economics 0645, Faculty of Economics, University of Cambridge.
  20. Cronshaw, Mark B & Brown-Kruse, Jamie, 1996. "Regulated Firms in Pollution Permit Markets with Banking," Journal of Regulatory Economics, Springer, vol. 9(2), pages 179-89, March.
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