Banking of surplus emissions allowances: Does the volume matter?

Arbeitspapier

In the European Emission Trading scheme the supply of allowances exceeds emissions - cumulating, according to our estimates, in a surplus of 2.7 billion tonnes by 2013/2014. We find that initially the surplus was acquired by power companies so as to hedge future carbon costs. As the surplus exceeds this hedging demand, additional allowances need to be acquired as speculative investment. This requires higher rates of return and implies that expected future carbon prices are highly discounted. This could explain the recent drop in carbon prices. The analysis shows that the volume of unused allowances matters for the discount applied to future carbon prices. We use our supply-demand framework to assess currently discussed policy options set-aside, reserve price for auctions and adjustments of emission targets.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DIW Discussion Papers ; No. 1196

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: Government Policy and Regulation ; Energy: Government Policy
• Subject: European emission trading scheme ; banking ; discount rates

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Neuhoff, Karsten ; Schopp, Anne ; Boyd, Rodney ; Stelmakh, Kateryna ; Vasa, Alexander
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/61402
• Last update: 10.03.2025, 11:44 AM CET