Allowance Price Drivers in the First Phase of the EU ETS

Beat Hintermann

No 09-63, CEPE Working paper series from CEPE Center for Energy Policy and Economics, ETH Zurich

Abstract: In the first phase of the EU Emissions Trading Scheme (EU ETS), the price per ton of CO2 rose to over €30 before decreasing to zero by mid 2007. I examine to what extent this variation can be explained by marginal abatement costs by deriving a structural model of the allowance price under the assumption of efficient markets. I then gradually relax the model by allowing for delayed adjustment of price to fundamentals, as well as by introducing lagged LHS variables. The pattern of the results suggests that prices were not initially driven by marginal abatement costs, but that this inefficiency was largely corrected by the first round of emission verifications.

Keywords: Emissions permit markets; air pollution; climate change; bubble; speculation; CO2; asset pricing; EU ETS (search for similar items in EconPapers)
JEL-codes: D84 G12 G14 Q52 Q53 Q54 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2009-05
New Economics Papers: this item is included in nep-eec, nep-ene and nep-env
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Allowance price drivers in the first phase of the EU ETS (2010)
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