Transactions in the European Carbon Market: a Bubble of Compliance in a Whirlpool of Speculation

Nathalie Berta (), Emmanuelle Gautherat () and Ozgur Gun ()
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Nathalie Berta: REGARDS - Université de Reims et Centre d'Economie de la Sorbonne
Emmanuelle Gautherat: REGARDS - Université de Reims et LS-CREST - Genes
Ozgur Gun: REGARDS - Université de Reims

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: The European Union Emissions Trading Scheme (EU ETS) is supposed to help regulated installations to cover their CO2 emissions by trading in allowances. In practice, the EU ETS is mainly a financial market used for hedging and speculation. This financial feature is regarded as a solution (hedging and liquidity) to a problem (the price risk and volatility imposed on installations) which the market has actually created itself. This paper provides an estimation of the real underpinning of the scheme, i.e. the needs of installations for allowances transfers to achieve compliance in the two first exchange periods. This estimation, which was singularly lacking in the literature, shows that compliance transactions become more and more marginal as market activity grows and that they are drowned in a whirlpool of speculation. This challenges the role of the carbon price whose financial and self-referential evaluation can obviously not reveal installations' marginal abatement costs, the condition of cost-effectiveness expected from carbon trading

Keywords: European Union Emissions Trading Scheme; carbon market; CO2 allowance; carbon finance (search for similar items in EconPapers)
JEL-codes: B5 Q02 Q5 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2015-10
New Economics Papers: this item is included in nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:15074

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