Emission Price Dynamics

Marc Chesney, Jonathan Gheyssens, Anca Claudia Pana and Luca Taschini
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Marc Chesney: University of Zurich
Jonathan Gheyssens: United Nations Environmental Programme Financial Initiative (UNEP FI)
Anca Claudia Pana: University of Zurich

Chapter 7 in Environmental Finance and Investments, 2016, pp 159-197 from Springer

Abstract: Abstract Since the creation of the European Union Emissions Trading Scheme (EU ETS) in 2005, a burgeoning academic literature has emerged to identify the key price drivers of European Union Allowances. This chapter overviews the main econometric studies that investigate energy prices, weather events, and macroeconomic shocks as determinants of allowance prices. A coal-to-gas switching model is introduced and calibrated to real data. Given the importance of understanding the emission permit price formation, this remaining of this chapter provides an overview of deterministic and stochastic equilibrium permit price models suggested in the literature. Several market design institutions are considered. Banking and borrowing limitations, strategic trading interactions, and asymmetric information in the permit market are the most relevant.

Keywords: Abatement Cost; Market Equilibrium; Future Contract; Geometric Brownian Motion; Spot Price (search for similar items in EconPapers)
Date: 2016
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Chapter: The Emission Price Dynamics (2013)
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DOI: 10.1007/978-3-662-48175-2_7

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