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European carbon prices and banking restrictions: evidence from phase I (2005-2007)

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  • Emilie Alberola
  • Julien Chevallier

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

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.

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  • Emilie Alberola & Julien Chevallier, 2007. "European carbon prices and banking restrictions: evidence from phase I (2005-2007)," Working Papers hal-04139202, HAL.
    • Handle: RePEc:hal:wpaper:hal-04139202
    Note: View the original document on HAL open archive server: https://hal.science/hal-04139202
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    References listed on IDEAS

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    Cited by:

    1. Julien Chevallier & Johanna Etner & Pierre-André Jouvet, 2008. "Bankable Pollution Permits under Uncertainty and Optimal Risk Management Rules: Theory and Empirical Evidence," EconomiX Working Papers 2008-25, University of Paris Nanterre, EconomiX.
    2. Emilie Alberola & Julien Chevallier & Benoît Chèze, 2008. "The EU Emissions Trading Scheme : Disentangling the Effects of Industrial Production and CO2 Emissions on Carbon Prices," Working Papers hal-04140795, HAL.

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