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The European Emission Trading Scheme: Implications For Long-Term Investment Valuation

Author

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  • LUIS M. ABADIE

    (Basque Centre for Climate Change (BC3)/Alameda, Urquijo 4,4a-1a, 48008 Bilbao, Spain)

  • IBON GALARRAGA

    (Basque Centre for Climate Change (BC3)/Alameda, Urquijo 4,4a-1a, 48008 Bilbao, Spain)

Abstract

As the EU Emission Trading Scheme (EU ETS) moves towards its third phase (2013–2020) it has undergone numerous improvements, including a gradual increase in the use of auctions as a distribution mechanism and the prevalence of sectoral criteria over National Allocation Plans. At the same time, emission allowances with maturities up to December 2020 have begun to be traded on the futures markets, reflecting the impact that the new measures are expected to have on prices. This paper sets out to obtain a financial valuation of the impact and analyze whether the resulting prices will facilitate investment in installations to bring about reductions in emissions. The effect on investments of the potential introduction of caps and floors on emission trading prices is also studied.

Suggested Citation

  • Luis M. Abadie & Ibon Galarraga, 2011. "The European Emission Trading Scheme: Implications For Long-Term Investment Valuation," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 129-148.
    • Handle: RePEc:wsi:ccexxx:v:02:y:2011:i:02:n:s2010007811000243
    DOI: 10.1142/S2010007811000243
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    References listed on IDEAS

    as
    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. Alberto Ansuategi & Ibon Galarraga, 2009. "Carbon Pricing as an Effective Instrument of Climate Policy: Searching for an Optimal Policy Instrument," Rivista di Politica Economica, SIPI Spa, vol. 99(3), pages 147-169, JULY-SEPT.
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