The timeline of trading frictions in the European carbon market

Vicente Medina, Ángel Pardo and Roberto Pascual

Energy Economics, 2014, vol. 42, issue C, 378-394

Abstract: During its trial phase (Phase I), the EU Greenhouse Gas Emission Trading Scheme (EU-ETS) collapsed because of an over-allocation of emission allowances. We evaluate the progress of this market from the trial phase to the next commitment period (Phase II) from a microstructure angle. We show that trading frictions, as measured by the relative spread, information-asymmetry risk, and market-making profits decreased from Phase I to Phase II. Although volatility decreased, its noise-related component gained in importance at the expense of its information-related component, resulting in lower quality of the price changes.

Keywords: European Union Emission Trading Scheme; European Union Allowances; Trading frictions; Informativeness of prices; Market quality; Market microstructure (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

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Working Paper: The timeline of trading fricions in the European Carbon Market (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:42:y:2014:i:c:p:378-394

DOI: 10.1016/j.eneco.2014.01.008

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