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Price relationships in the EU emissions trading system

Author

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  • Julien Chevallier

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

The Emissions Trading Scheme (ETS) constrains industrial polluters to buy/sell CO2 allowances depending on a regional depolluting objective of -8% of CO2 emissions by 2012 compared to 1990 levels. Companies may also buy carbon offsets from developing countries, funding emissions cuts there instead, under a Kyoto Protocol Clean Development Mechanism (CDM). This article critically analyzes the price relationships in the EU emissions trading system. The United Nations Framework Convention on Climate Change (UNFCCC) delivers credits that may be used by European companies for their compliance needs. Certified Emissions Reductions (CERs) from CDM projects are credits flowing into the global compliance market generated through emission reductions. EUAs (EU Allowances) are the tradable unit under the EU ETS. Besides, the EU Linking Directive allows the import for compliance into the EU ETS up to 13.4% of CERs on average. This article details the idiosyncratic risks affecting each emissions market, be it in terms of regulatory uncertainty, economic activity, industrial structure, or the impact of other energy markets. Besides, based on a careful analysis of the EUA and CER price paths, we assess common risk factors by focusing more particularly on the role played by the CER import limit within the ETS.

Suggested Citation

  • Julien Chevallier, 2010. "Price relationships in the EU emissions trading system," Working Papers halshs-00458728, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00458728
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00458728
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    References listed on IDEAS

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    1. 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.
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    Cited by:

    1. Copenhagen Economics, 2010. "Tax Treatment of ETS Allowances: Options for Improving Transparency and Efficiency," Taxation Studies 0035, Directorate General Taxation and Customs Union, European Commission.
    2. Julien Chevallier, 2010. "Carbon Prices during the EU ETS Phase II: Dynamics and Volume Analysis," Working Papers halshs-00459140, HAL.

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    More about this item

    Keywords

    Kyoto Protocol; Clean Development Mechanism; EU Emissions Trading Scheme; Greenhouse Gases Reductions; Emissions Markets; CDM; EU ETS;
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