No abstract

European Union Emission Trading System (EU ETS) is a key instrument of EU’s climate policy and the largest international cap-and-trade system. Every allowance transaction is recorded in an electronic registry, called European Union Transaction Log (EUTL). Utilizing the vast amount of EUTL data, we exploit the EU ETS transaction network as a means for understanding in depth the allowance market structure. We observe that the network follows the core-periphery structure and identify a small subset of core transactors. We provide strong evidence that despite its small size, the part of the network built around core transactors captures all the key properties of the entire EU ETS transactions network. Moreover, due to high and more regular trading, the transactions of the core members lack the “noisy” behaviour typically appearing in the periphery. Through extensive evaluation, we demonstrate that the core transactions can provide better results in explaining and forecasting the allowance price. Our work provides a compact and useful tool which can be used not only towards understanding a large and complex allowance market, but also towards evaluating one of the most prominent environmental policy instruments, the EU ETS.

The European Union Emission Trading System (EU ETS) is the world’s largest cap-and-trade system. The observed price instabilities and the oversupply of the allowances are two characteristics that affect the objectives and the efficiency of the policy. In this article we investigate the impact of storing allowances, i.e. banking, in terms of the price level, transaction volume and importance in the underlying trading network. To that end, we used data from the EU Transaction Log (EUTL) until 2014 in conjunction with a variety of important price determinants. Using a sectoral analysis through the years, we observe that the regulated actors participate increasingly in the transaction network in contrast with the pure financial actors that exhibit an opposite trend. Furthermore, we quantify the relationship between banking and the carbon price by applying multiple regression on the price considering many possible price determinants both financial and EU ETS systemic in nature. We claim that after considering these factors, banking is a notable price determinant. Finally, we examined the network of transactions of allowances with respect to the role of financial and regulated nodes. We identified the intermediary role of financial nodes from their significance in the network structure.