European carbon prices and banking restrictions: evidence from phase I (2005-2007)
The price of European Union Allowances (EUAs) has been declining at far lower levels than expected during Phase I (2005-2007). Previous literature identifies among its main explanations over-allocation concerns, early abatement efforts in 2005 and possibly decreasing abatement costs in 2006. We advocate low allowance prices may also be explained by banking restrictions between 2007 and 2008 which undermine the ability of the EU ETS to provide an efficient price signal. Based on a Hotelling-type analysis, our results suggest EUA prices do not reflect adequately abatement costs. We also give evidence that the French ban on banking and the expected allowance scarcity at the end of Phase I computed by the Ellerman-Parsons ratio contribute to the explanation of low EUA prices. This situation may be interpreted as a sacrifice of the temporal flexibility offered to industrials in Phase I to give a chance to correct design inefficiencies and achieve an efficient price pattern leading to effective abatement efforts in Phase II.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: 200 Avenue de la République, Bât. G - 92001 Nanterre Cedex|
Web page: http://economix.fr
More information through EDIRC
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.:
- Ehrhart, Karl-Martin & Hoppe, Christian & Schleich, Joachim & Seifert, Stefan, 2004. "The role of auctions and forward markets in the EU," Sonderforschungsbereich 504 Publications 04-59, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- 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.
- Michael Grubb & Karsten Neuhoff, 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 7-30, January.
- Schleich, Joachim & Ehrhart, Karl-Martin & Hoppe, Christian & Seifert, Stefan, 2004.
"Banning banking in EU emissions trading?,"
Sonderforschungsbereich 504 Publications
04-60, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Margaret E. Slade & Henry Thille, 1997. "Hotelling Confronts CAPM: A Test of the Theory of Exhaustible Resources," Canadian Journal of Economics, Canadian Economics Association, vol. 30(3), pages 685-708, August.
- Ellerman, A.D. & Juan-Pablo Montero, 2002.
"The Temporal Efficiency of SO2 Emissions Trading,"
Cambridge Working Papers in Economics
0231, Faculty of Economics, University of Cambridge.
- 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.
- Timothy N. Cason & Lata Gangadharan, 2004.
"Emissions Variability in Tradable Permit Markets with Imperfect Enforcement and Banking,"
Department of Economics - Working Papers Series
917, The University of Melbourne.
- Cason, Timothy N. & Gangadharan, Lata, 2006. "Emissions variability in tradable permit markets with imperfect enforcement and banking," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 199-216, October.
- 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.
- Godby, Robert W. & Mestelman, Stuart & Muller, R. Andrew & Welland, J. Douglas, 1997. "Emissions Trading with Shares and Coupons when Control over Discharges Is Uncertain," Journal of Environmental Economics and Management, Elsevier, vol. 32(3), pages 359-381, March.
- Junsoo Lee & Mark C. Strazicich, 2013.
"Minimum LM unit root test with one structural break,"
AccessEcon, vol. 33(4), pages 2483-2492.
- Junsoo Lee & Mark C. Strazicich, 2004. "Minimum LM Unit Root Test with One Structural Break," Working Papers 04-17, Department of Economics, Appalachian State University.
- Pindyck, Robert S, 1993.
"The Present Value Model of Rational Commodity Pricing,"
Royal Economic Society, vol. 103(418), pages 511-30, May.
- Robert S. Pindyck, 1992. "The Present Value Model of Rational Commodity Pricing," NBER Working Papers 4083, National Bureau of Economic Research, Inc.
- Pindyck, Robert S., 1991. "The present value model of rational commodity pricing," Working papers 3354-91., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000.
"Markets for Clean Air,"
Cambridge University Press, number 9780521660839, June.
- 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.
- 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.
- Kling, Catherine L. & Rubin, Jonathan, 1997.
"Bankable Permits for the Control of Environmental Pollution,"
Staff General Research Papers
1479, Iowa State University, Department of Economics.
- 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.
- Junsoo Lee & Mark Strazicich, 2001. "Testing the null of stationarity in the presence of a structural break," Applied Economics Letters, Taylor & Francis Journals, vol. 8(6), pages 377-382.
- 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.
When requesting a correction, please mention this item's handle: RePEc:drm:wpaper:2007-32. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valérie Mignon)
If references are entirely missing, you can add them using this form.