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Network-Based Analysis of EU Emissions Trading Scheme

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  • Beatrice Federica Paolella
  • Tanya Araújo

Abstract

The European Union Emissions Trading Scheme (EU ETS) has been instrumental in mitigating carbon dioxide (CO2) emissions across Europe since its initiation on January 1, 2005. CO2 has emerged as a traded commodity in the EU ETS, governed by market fundamentals similar to those in other global commodity markets. The interplay of supply and demand, driven by the allocation of allowances, plays thus a crucial role. Here, using real data, we developed networks of EU ETS to model exchanges of allowances between EU countries. Our results provide new insights into the topological structure of trading from 2005-2020. Combining the results from centrality measures, clustering and modularity, the EU ETS networks can be seen in the transition from a structure with few clusters to a structure characterized by numerous clusters organized around new nodes with acquired centrality.

Suggested Citation

  • Beatrice Federica Paolella & Tanya Araújo, 2024. "Network-Based Analysis of EU Emissions Trading Scheme," Working Papers REM 2024/0337, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp03372024
    as

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    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_0337_2024.pdf
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    References listed on IDEAS

    as
    1. Abrell, Jan & Kosch, Mirjam & Rausch, Sebastian, 2022. "How effective is carbon pricing?—A machine learning approach to policy evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 112(C).
    2. Zhang, Yue-Jun & Wei, Yi-Ming, 2010. "An overview of current research on EU ETS: Evidence from its operating mechanism and economic effect," Applied Energy, Elsevier, vol. 87(6), pages 1804-1814, June.
    Full references (including those not matched with items on IDEAS)

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    Keywords

    Emissions Trading Scheme; Network Analysis; CO2 Trading; Allocation of Allowences.;
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