Explaining the EUA-CER spread
Project funded by own resources
Project title Explaining the EUA-CER spread
Principal Investigator(s) Hintermann, Beat
Co-Investigator(s) Gronwald, Marc
Organisation / Research unit Departement Wirtschaftswissenschaften / Public Economics / Public Finance (Hintermann)
Project Website https://rdcu.be/bA3zY
Project start 01.03.2014
Probable end 31.12.2019
Status Completed
Abstract

Carbon offsets from the Kyoto Flexible Mechanisms can be used by firms in the EU Emissions Trading Scheme for compliance in lieu of EU allowances, making these carbon assets interchangeable. We offer an explanation of the price spread using a structural model of the price for Certified Emissions Reductions that combines three features: A limit for the use of Kyoto offsets within the EU ETS; a disconnect between the current price of offsets and their marginal cost of production due to institutional reasons; and uncertainty about future supply and demand of offsets. Our model expresses the offset price as an average of the EU allowance price and an offset's outside value, weighted by the probability of a binding import limit. Using monthly series of the United Nation's Clean Development Mechanism and Joint Implementation about offset supply and demand, we provide empirical support for our theory of offset price formation. Counterfactual simulations suggest that the price process is dominated by uncertainty.

Keywords EU ETS, Kyoto, climate policy, Clean Development Mechanism, carbon pricing
Financed by University funds

Published results ()

  ID Autor(en) Titel ISSN / ISBN Erschienen in Art der Publikation
4506919  Hintermann, Beat; Gronwald, Marc  Linking with uncertainty: The relationship between EU ETS pollution permits and Kyoto offsets  0924-6460 ; 1573-1502  Environmental and Resource Economics  Publication: JournalArticle (Originalarbeit in einer wissenschaftlichen Zeitschrift) 

Cooperations ()

  ID Kreditinhaber Kooperationspartner Institution Laufzeit - von Laufzeit - bis
3721519  Hintermann, Beat  Gronwald, Marc, Senior Lecturer  University of Aberdeen  01.03.2014  31.12.2017 
   

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