What is Driving the EU ETS Carbon Price?

Angela Köppl, Stefan Schleicher and Jean-Yves Caneill
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Stefan Schleicher: Austrian Institute of Economic Research
Jean-Yves Caneill: European Roundtable on Climate Change and Sustainable Transition

No 7, WIFO Research Briefs from WIFO

Abstract: The EU Emissions Trading System (EU ETS) is intended to be the flagship instrument of EU climate policy. Key aspects in this cap-and-trade scheme are the target path as well as the market price for emission allowances which results from supply and demand for these allowances. The recent pronounced price movements on the market for emission allowances raise the question what causes these fluctuations and what could be the carbon price's role for stimulating and guiding the transformation of the EU economy towards the 2030 emission target, which aims at a reduction of greenhouse gases of at least 55 percent compared to 1990 levels. This research brief collects evidence about the market stringencies that result from demand and supply and that prevailed in the third trading period between 2013 and 2020 and discusses potential drivers for the carbon price in the current trading period up to 2030. We conclude that aligning the EU ETS with the "Fit for 55" framework, the expected radical innovation efforts needed in particular for the hard-to-abate industries together with changing market behaviour due to hedging and speculative trading will likely keep the EU ETS carbon price volatile.

Keywords: TP_GrueneTransformation (search for similar items in EconPapers)
Pages: 12 pages
Date: 2022-03-16
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:wfo:rbrief:y:2022:i:7

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