European carbon prices and banking restrictions: evidence from phase I (2005-2007)

Emilie Alberola and Julien Chevallier

No 2007-32, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: The price of European Union Allowances (EUAs) has been declining at far lower levels than expected during Phase I (2005-2007). Previous literature identifies among its main explanations over-allocation concerns, early abatement efforts in 2005 and possibly decreasing abatement costs in 2006. We advocate low allowance prices may also be explained by banking restrictions between 2007 and 2008 which undermine the ability of the EU ETS to provide an efficient price signal. Based on a Hotelling-type analysis, our results suggest EUA prices do not reflect adequately abatement costs. We also give evidence that the French ban on banking and the expected allowance scarcity at the end of Phase I computed by the Ellerman-Parsons ratio contribute to the explanation of low EUA prices. This situation may be interpreted as a sacrifice of the temporal flexibility offered to industrials in Phase I to give a chance to correct design inefficiencies and achieve an efficient price pattern leading to effective abatement efforts in Phase II.

Keywords: Carbon emissions trading; EU ETS; Banking; Borrowing; Hotelling rule; Ellerman-Parsons ratio. (search for similar items in EconPapers)
JEL-codes: Q28 Q52 Q58 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2007
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (102)

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Related works:
Journal Article: European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007) (2009)
Working Paper: European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007) (2009)
Working Paper: European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007) (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2007-32

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