The EU Emission Trading Scheme. Insights from the First Trading Years with a Focus on Price Volatility

Claudia Kettner, Angela Köppl and Stefan Schleicher
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Stefan Schleicher: WIFO

No 368, WIFO Working Papers from WIFO

Abstract: The EU Emission Trading Scheme (EU ETS) is a key instrument in European climate policy. Evidence from the first trading period (2005-2007) and the first year of the Kyoto period 2008 dampened, however, ex-ante enthusiasm: because of substantial over-allocation of emissions allowances in the first trading period the overall emissions cap was not stringent which caused a sharp drop in carbon prices. In 2008 a more stringent cap but still high price volatility was observed. Based on experience from the first years of the EU ETS the design of the EU ETS will be changed for the post-Kyoto period (2013-2020) including an EU-wide cap and the use of auctioning as the main allocation principle. So far, no measures to control price volatility are envisaged. This issue however gains in importance in the political and economic debate as prices are an important signal for investment decisions. More or less stable price signals are essential for the environmental effectiveness of an emissions trading scheme. As evidence shows, this is not necessarily guaranteed by the market process. Based on an analysis of the first trading years the paper provides an argumentation for the implementation of price stabilisation measures in the post-Kyoto period.

Keywords: EU Emission Trading Scheme; climate policy; emissions trading (search for similar items in EconPapers)
Pages: 26 pages
Date: 2010-04
New Economics Papers: this item is included in nep-ene, nep-env, nep-eur and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:wfo:wpaper:y:2010:i:368

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