Banking and backloading emission permits

Corinne Chaton, Anna Créti and Benoit Peluchon
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Anna Créti: X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris
Benoit Peluchon: EDF R&D - EDF R&D - EDF - EDF

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Abstract: In this article we focus on carbon price dynamics, more speci cally the impact of a policy envisaged by the European Commission to increase the CO2 price. This policy consists of removing a share of the allowances allocated for a period in order to reallocate some or all of them during the following period. To analyze the impact of this backloading we determine the CO2 market equilibrium with and without the policy, considering not only the market for permits but also the output market of regulated sectors. We propose a two-period model without uncertainty, where the market for permits is perfectly competitive, and the output market can be either com- petitive or oligopolistic. First, we de ne the condition for which banking from one period to another is optimal. This condition, that is the absence of arbitrage opportunities (AOA), depends on not only from the per period initial allocation but also on production market fundamentals. When this condition is satisfi ed, the market for emission is shown intertemporally efficient. Second, we show that the "back-loading"policy may be such that theAOA is no longer veri ed and thus create inefficiencies or being ineffective.

Keywords: CO2 prices; banking; backloading; ETS reform.; ETS reform (search for similar items in EconPapers)
Date: 2013-12-09
New Economics Papers: this item is included in nep-ene and nep-env
Note: View the original document on HAL open archive server: https://hal.science/hal-00915944
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Related works:
Journal Article: Banking and back-loading emission permits (2015)
Working Paper: Banking and back-loading emission permits (2015)
Working Paper: Banking and back-loading emission permits (2015)
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