Transactions in the European carbon market: a bubble of compliance in a whirlpool of speculation

Nathalie Berta (), Emmanuelle Gautherat () and Ozgur Gun ()
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Nathalie Berta: REGARDS - Recherches en Économie Gestion AgroRessources Durabilité Santé- EA 6292 - URCA - Université de Reims Champagne-Ardenne - MSH-URCA - Maison des Sciences Humaines de Champagne-Ardenne - URCA - Université de Reims Champagne-Ardenne
Emmanuelle Gautherat: LS-CREST - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - IP Paris - Institut Polytechnique de Paris
Ozgur Gun: REGARDS - Recherches en Économie Gestion AgroRessources Durabilité Santé- EA 6292 - URCA - Université de Reims Champagne-Ardenne - MSH-URCA - Maison des Sciences Humaines de Champagne-Ardenne - URCA - Université de Reims Champagne-Ardenne

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Abstract: The European Union Emissions Trading Scheme (EU ETS) is supposed to help regulated installations to cover their CO2 emissions by trading in allowances. In practice, the EU ETS is mainly a financial market used for hedging and speculation. This financial feature is regarded as a solution (hedging and liquidity) to a problem (the price risk and volatility imposed on installations) which the market has actually created itself. This paper provides an estimation of the real underpinning of the scheme, i.e. the needs of installations for allowances transfers to achieve compliance in the two first exchange periods. This estimation, which was singularly lacking in the literature, shows that compliance transactions become more and more marginal as market activity grows, and they are drowned in a whirlpool of speculation. This challenges the role of the carbon price, whether it reveals a financial and self-referential evaluation rather than the installations' marginal abatement costs, the condition of cost-effectiveness expected from carbon trading.

Keywords: EU ETS; emission trading; carbon market; financialization; speculation; carbon price (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (13)

Published in Cambridge Journal of Economics, 2017, 41 (2), pp.287-318. ⟨10.1093/cje/bew041⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02095629

DOI: 10.1093/cje/bew041

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