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The market stability reserve in the EU emissions trading system: a critical review

Author

Listed:
  • Borghesi, Simone
  • Pahle, Michael
  • Perino, Grischa
  • Quemin, Simon
  • Willner, Maximilian

Abstract

Having experienced low prices for about a decade, the European Union Emissions Trading System has been supplemented with the market stability reserve (MSR) that adjusts the supply of allowances to market outcomes. We critically review the literature assessing the performance of the MSR against several policy objectives. In doing so, we cover both conceptual aspects and quantitative assessments. We conclude by pointing out important policy implications and open issues for further research.

Suggested Citation

  • Borghesi, Simone & Pahle, Michael & Perino, Grischa & Quemin, Simon & Willner, Maximilian, 2023. "The market stability reserve in the EU emissions trading system: a critical review," LSE Research Online Documents on Economics 120548, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:120548
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    File URL: http://eprints.lse.ac.uk/120548/
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    References listed on IDEAS

    as
    1. Burtraw, Dallas & Palmer, Karen & Munnings, Clayton & Weber, Paige & Woerman, Matt, 2013. "Linking by Degrees: Incremental Alignment of Cap-and-Trade Markets," RFF Working Paper Series dp-13-04, Resources for the Future.
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    3. Matthew Ranson & Robert N. Stavins, 2016. "Linkage of greenhouse gas emissions trading systems: learning from experience," Climate Policy, Taylor & Francis Journals, vol. 16(3), pages 284-300, April.
    4. Simon Quemin & Michael Pahle, 2023. "Financials threaten to undermine the functioning of emissions markets," Nature Climate Change, Nature, vol. 13(1), pages 22-31, January.
    5. Reyer Gerlagh & Roweno J. R. K. Heijmans, 2019. "Climate-conscious consumers and the buy, bank, burn program," Nature Climate Change, Nature, vol. 9(6), pages 431-433, June.
    6. Friedrich, Marina & Mauer, Eva-Maria & Pahle, Michael & Tietjen, Oliver, 2020. "From fundamentals to financial assets: the evolution of understanding price formation in the EU ETS," EconStor Preprints 196150, ZBW - Leibniz Information Centre for Economics, revised 2020.
    7. Fell, Harrison, 2016. "Comparing policies to confront permit over-allocation," Journal of Environmental Economics and Management, Elsevier, vol. 80(C), pages 53-68.
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    More about this item

    Keywords

    climate policy; emissions trading; EU ETS; overlapping policies; stability mechanism;
    All these keywords.

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

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