European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007)

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.

Factors affecting the pilot trading market of carbon emissions in China

“…It appears from these and related studies that the influence of compliance and the large list of potential fundamentals makes the carbon market more complex than other commodity markets and explains the significant attention that is paid to this market (Ellerman and Buchner 2007;Convery and Redmond 2007;Chevallier 2013;Zhang and Wei 2010), especially for an accurate review on the carbon price development in the EU ETS and its operating mechanism and economic effect. Alberola et al (2008a, b, c), Chevallier (2009) and Alberola and Chevallier (2009) had analyzed in detail the effects of institutional decisions (the emissions shortfall factor and banking restrictions) on the price path of carbon. Chevallier (2012) studied how banking instruments can be used to manage the stock of allowances in the European Union Emissions Trading Scheme (EU ETS).…”

Time-varying correlations in oil, gas and CO2prices: an application using BEKK, CCC and DCC-MGARCH models

“…Insert Figure 2 about here 8 Therefore, Phase II futures proved to be much more reliable than futures prices for delivery during Phase I (2005Phase I ( -2007 due to the banking restrictions enforced between 2007(Alberola and Chevallier (2009 To sum up, none of the raw time-series under consideration may be approximated by the normal distribution. Oil, gas and CO 2 log-returns are presented in Figure 2.…”

Energy risk management with carbon assets

“…As sensitivity tests, we have considered the ECX December 2009 contract for carbon prices, the ECX CER Futures for CERs prices, the European Energy Exchange (EEX) off-peak 7 This choice of a carbon futures contract for delivery during Phase II of the EU ETS is motivated by the erratic behaviour of carbon prices during Phase I due to the banking restrictions implemented between Phase I and Phase II (Alberola and Chevallier (2009)). 8 To ensure that all energy prices are traded with the same currency, we converted dollars to euros using the European Central Bank daily exchange rate (available at http://www.ecb.int ).…”