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Price and market behavior in phase II of the EU ETS: a review of the literature
JournalArticle (Originalarbeit in einer wissenschaftlichen Zeitschrift)
ID 2736409
Author(s) Hintermann, Beat; Peterson, Sonja; Rickels, Wilfried
Author(s) at UniBasel Hintermann, Beat
Year 2016
Title Price and market behavior in phase II of the EU ETS: a review of the literature
Journal Review of environmental economics and policy
Volume 10
Number 1
Pages / Article-Number 108-128
Keywords Emissions trading, EU ETS, allowance price, climate, CO2
Abstract Since 2005, the EU ETS has provided a market-based price signal for European carbon emissions, accompanied by increasing economic research related to this policy instrument. In this paper, we carry out a review of the empirical literature examining allowance price formation. A consensus has emerged that allowance prices are significantly related to fuel prices and to variables affecting the expected amount of necessary abatement, such as economic activity or changes in the cap. However, the relationship is not robust, probably because the relevant abatement technologies change with the economic conditions they operate in. There is evidence that models explicitly accounting for uncertainty about future demand and supply of abatement are better at explaining allowance price variation during certain periods. Yet, our understanding of the level of the allowance price remains poor. We cannot say with any degree of confidence whether the price is “right,” in the sense that it reflects marginal abatement costs, or whether there is a price wedge caused by transaction costs, price manipulation, or other sources of inefficiency. Nevertheless, the market has matured compared to Phase I, and the banking provision has induced it to incorporate future scarcity of allowances and to smooth the effect of transient shocks as intended.
Publisher Oxford University Press
ISSN/ISBN 1750-6824
Full Text on edoc Available
Digital Object Identifier DOI 10.1093/reep/rev015
ISI-Number WOS:000384714700007
Document type (ISI) Review

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