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Transactions in the European Carbon Market: a Bubble of Compliance in a Whirlpool of Speculation

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  • Nathalie Berta

    (REGARDS - Recherches en Économie Gestion AgroRessources Durabilité Santé- EA 6292 - URCA - Université de Reims Champagne-Ardenne - MSH-URCA - Maison des Sciences Humaines de Champagne-Ardenne - URCA - Université de Reims Champagne-Ardenne, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Emmanuelle Gautherat

    (LS-CREST - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique, REGARDS - Recherches en Économie Gestion AgroRessources Durabilité Santé- EA 6292 - URCA - Université de Reims Champagne-Ardenne - MSH-URCA - Maison des Sciences Humaines de Champagne-Ardenne - URCA - Université de Reims Champagne-Ardenne)

  • Ozgur Gun

    (REGARDS - Recherches en Économie Gestion AgroRessources Durabilité Santé- EA 6292 - URCA - Université de Reims Champagne-Ardenne - MSH-URCA - Maison des Sciences Humaines de Champagne-Ardenne - URCA - Université de Reims Champagne-Ardenne)

Abstract

The European Union Emissions Trading Scheme (EU ETS) is supposed to help regulated installations to cover their CO2 emissions by trading in allowances. In practice, the EU ETS is mainly a financial market used for hedging and speculation. This financial feature is regarded as a solution (hedging and liquidity) to a problem (the price risk and volatility imposed on installations) which the market has actually created itself. This paper provides an estimation of the real underpinning of the scheme, i.e. the needs of installations for allowances transfers to achieve compliance in the two first exchange periods. This estimation, which was singularly lacking in the literature, shows that compliance transactions become more and more marginal as market activity grows and that they are drowned in a whirlpool of speculation. This challenges the role of the carbon price whose financial and self-referential evaluation can obviously not reveal installations' marginal abatement costs, the condition of cost-effectiveness expected from carbon trading.

Suggested Citation

  • Nathalie Berta & Emmanuelle Gautherat & Ozgur Gun, 2015. "Transactions in the European Carbon Market: a Bubble of Compliance in a Whirlpool of Speculation," Post-Print halshs-01224552, HAL.
  • Handle: RePEc:hal:journl:halshs-01224552
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01224552
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    Keywords

    European Union Emissions Trading Scheme; carbon market; CO2 allowance; carbon finance; marché de carbone européen; marché de permis négociables; finance carbone;
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