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Banking and back-loading emission permits

Author

Listed:
  • Corinne Chaton

    (FiME Lab - Laboratoire de Finance des Marchés d'Energie - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CREST - EDF R&D - EDF R&D - EDF [E.D.F.] - EDF – Électricité de France)

  • Anna Creti

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Benoît Peluchon

    (EDF R&D - EDF R&D - EDF [E.D.F.] - EDF – Électricité de France)

Abstract

In this article we focus on the so-called back-loading policy adopted by the European Commission to increase the carbon market price. This environmental measure consists of removing a share of the allowances allocated for a given period in order to reallocate some or all of them later on. To analyze the impact of the permits back-loading, we determine the CO2 price equilibrium with and without the policy measure, considering not only the market for permits but also the output market of regulated sectors. We propose a two-period model, where the market for permits is perfectly competitive, and the output market can be either competitive or oligopolistic. First, we define the condition under which banking from one period to another is optimal. This condition, that is the absence of arbitrage opportunities (AOA), depends not only from the period initial allocation but also on production market fundamentals. When this condition is satisfied, the market for emission is shown intertemporally efficient. Second, we point out that the back-loading measure may create inefficiencies or leave unaffected the permits price, if it alters the AOA.

Suggested Citation

  • Corinne Chaton & Anna Creti & Benoît Peluchon, 2015. "Banking and back-loading emission permits," Post-Print hal-01517406, HAL.
    • Handle: RePEc:hal:journl:hal-01517406
    DOI: 10.1016/j.enpol.2015.01.023
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    Cited by:

    1. Anouk Faure & Marc Baudry, 2021. "Technological Progress and Carbon Price Formation: an Analysis of EU-ETS Plants," Working Papers hal-04159764, HAL.
    2. Borghesi, Simone & Flori, Andrea, "undated". "EU ETS Facets in the Net: How Account Types Influence the Structure of the System," MITP: Mitigation, Innovation and Transformation Pathways 232214, Fondazione Eni Enrico Mattei (FEEM).
    3. Jiang, Minxing & Zhu, Bangzhu & Wei, Yi-Ming & Chevallier, Julien & He, Kaijian, 2018. "An intertemporal carbon emissions trading system with cap adjustment and path control," Energy Policy, Elsevier, vol. 122(C), pages 152-161.
    4. Simon Quemin & Raphael Trotignon, 2018. "Competitive Permit Storage and Market Design: An Application to the EU-ETS," Working Papers 2018.19, FAERE - French Association of Environmental and Resource Economists.
    5. Fields, Micah & Lindequist, David, 2024. "Global spillovers of US climate policy risk: Evidence from EU carbon emissions futures," Energy Economics, Elsevier, vol. 139(C).
    6. Jiang, Kai & Wang, Kunyu & Wu, Chengyu & Chen, Guo & Xue, Yusheng & Dong, Zhaoyang & Liu, Nian, 2024. "Trajectory simulation and optimization for interactive electricity-carbon system evolution," Applied Energy, Elsevier, vol. 360(C).
    7. Chaton, Corinne & Creti, Anna & Sanin, María-Eugenia, 2018. "Assessing the implementation of the Market Stability Reserve," Energy Policy, Elsevier, vol. 118(C), pages 642-654.
    8. Richard S.J. Tol, 2017. "Leaving an emissions trading scheme – insights from the United Kingdom," Working Paper Series 1017, Department of Economics, University of Sussex Business School.
    9. Richard S J Tol, 2018. "Policy Brief—Leaving an Emissions Trading Scheme: Implications for the United Kingdom and the European Union," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 183-189.
    10. Cretí, Anna & Joëts, Marc, 2017. "Multiple bubbles in the European Union Emission Trading Scheme," Energy Policy, Elsevier, vol. 107(C), pages 119-130.
    11. Ren'e Aid & Sara Biagini, 2021. "Optimal dynamic regulation of carbon emissions market: A variational approach," Papers 2102.12423, arXiv.org.
    12. Yolanda Fernández Fernández & María Angeles Fernández López & David González Hernández & Blanca Olmedillas Blanco, 2018. "Institutional Change and Environment: Lessons from the European Emission Trading System," Energies, MDPI, vol. 11(4), pages 1-16, March.

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