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Auctioning C02 Emission Allowances in Europe. A Time Series Analysis of Equilibrium Prices

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  • Bruno Bosco

Abstract

The purpose of this paper is to offer an analysis of the price behavior of Phase III (2013–2020) EU- ETS emission allowances of CO2, by focusing on the dynamics of daily auction equilibrium prices and on the changes of the volatility of the underlying stochastic process. The paper initially investigates the characteristics of equilibrium prices as they result from auction rules and bidders' behavior and uses them as a theoretical basis of the statistical hypothesis–common to the empirical literature active in this field– of a changing conditional variance of prices. Then, different versions of a GARCH model are employed to estimate both mean and variance equations of price dynamics and to evaluate what factors affect price volatility, recorded excess supply, and bidders’ surplus. Brief policy considerations are also offered.

Suggested Citation

  • Bruno Bosco, 2020. "Auctioning C02 Emission Allowances in Europe. A Time Series Analysis of Equilibrium Prices," Working Papers 448, University of Milano-Bicocca, Department of Economics.
    • Handle: RePEc:mib:wpaper:448
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    References listed on IDEAS

    as
    1. Cramton, Peter & Kerr, Suzi, 2002. "Tradeable carbon permit auctions: How and why to auction not grandfather," Energy Policy, Elsevier, vol. 30(4), pages 333-345, March.
    2. Bruno Bosco, Lucia Parisio and Matteo Pelagatti, 2016. "Price coordination in vertically integrated electricity markets. Theory and empirical evidence," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    3. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(4), pages 1366-1400.
    4. Bosco, Bruno & Parisio, Lucia & Pelagatti, Matteo, 2013. "Price-capping in partially monopolistic electricity markets with an application to Italy," Energy Policy, Elsevier, vol. 54(C), pages 257-266.
    5. Corjan Brink & Herman R.J. Vollebergh, 2020. "What Can We Learn from EU ETS?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 18(01), pages 23-29, April.
    6. Julien Chevallier, 2012. "Banking And Borrowing In The Eu Ets: A Review Of Economic Modelling, Current Provisions And Prospects For Future Design," Journal of Economic Surveys, Wiley Blackwell, vol. 26(1), pages 157-176, February.
    7. repec:dau:papers:123456789/4611 is not listed on IDEAS
    8. -, 2009. "The economics of climate change," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38679, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    9. Bruno Bosco & Lucia Parisio & Matteo Pelagatti & Fabio Baldi, 2010. "Long-run relations in european electricity prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 805-832.
    10. Robert Wilson, 1979. "Auctions of Shares," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 675-689.
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    Cited by:

    1. Bruno Bosco, 2023. "Trade, equilibrium prices and rents in European auctions for emission allowances," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 25(1), pages 87-113, January.

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    Keywords

    EU-ETS emission auctions; Equilibrium prices volatility; GARCH;
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