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Transactions in the European Carbon Market: a Bubble of Compliance in a Whirlpool of Speculation

Author

Listed:
  • Nathalie Berta

    (REGARDS - Université de Reims et Centre d'Economie de la Sorbonne)

  • Emmanuelle Gautherat

    (REGARDS - Université de Reims et LS-CREST - Genes)

  • Ozgur Gun

    (REGARDS - Université de Reims)

Abstract

The European Union Emissions Trading Scheme (EU ETS) is supposed to help regulated installations to cover their CO2 emissions by trading in allowances. In practice, the EU ETS is mainly a financial market used for hedging and speculation. This financial feature is regarded as a solution (hedging and liquidity) to a problem (the price risk and volatility imposed on installations) which the market has actually created itself. This paper provides an estimation of the real underpinning of the scheme, i.e. the needs of installations for allowances transfers to achieve compliance in the two first exchange periods. This estimation, which was singularly lacking in the literature, shows that compliance transactions become more and more marginal as market activity grows and that they are drowned in a whirlpool of speculation. This challenges the role of the carbon price whose financial and self-referential evaluation can obviously not reveal installations' marginal abatement costs, the condition of cost-effectiveness expected from carbon trading

Suggested Citation

  • Nathalie Berta & Emmanuelle Gautherat & Ozgur Gun, 2015. "Transactions in the European Carbon Market: a Bubble of Compliance in a Whirlpool of Speculation," Documents de travail du Centre d'Economie de la Sorbonne 15074, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:15074
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    More about this item

    Keywords

    European Union Emissions Trading Scheme; carbon market; CO2 allowance; carbon finance;
    All these keywords.

    JEL classification:

    • B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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