EU carbon prices signal high policy credibility and farsighted actors

Joanna Sitarz (), Michael Pahle, Sebastian Osorio, Gunnar Luderer and Robert Pietzcker ()
Additional contact information
Joanna Sitarz: Member of the Leibniz Association
Michael Pahle: Member of the Leibniz Association
Sebastian Osorio: Member of the Leibniz Association
Gunnar Luderer: Member of the Leibniz Association
Robert Pietzcker: Member of the Leibniz Association

Nature Energy, 2024, vol. 9, issue 6, 691-702

Abstract: Abstract Carbon prices in the EU emissions trading system are a key instrument driving Europe’s decarbonization. Between 2017 and 2021, they surged tenfold, exceeding €80 tCO2−1 and reshaping investment decisions across the electricity and industry sectors. What has driven this increase is an open question. While it coincided with two significant reforms tightening the cap (‘MSR reform’ and ‘Fit for 55’), we argue that a reduced supply of allowances alone cannot fully explain the price rise. A further crucial aspect is that actors must have become more farsighted as the reform signalled policymakers’ credible long-term commitment to climate targets. This is consistent with model results that show historic prices can be better explained with myopic actors, whereas explaining prices after the reforms requires actors to be farsighted. To underline the role of credibility, we test what would happen if a crisis undermines policy credibility such that actors become myopic again, demonstrating that carbon prices could plummet and endanger the energy transition.

Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.nature.com/articles/s41560-024-01505-x Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nat:natene:v:9:y:2024:i:6:d:10.1038_s41560-024-01505-x

Ordering information: This journal article can be ordered from
https://www.nature.com/nenergy/

DOI: 10.1038/s41560-024-01505-x

Access Statistics for this article

Nature Energy is currently edited by Fouad Khan

More articles in Nature Energy from Nature
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().