Arbeitspapier
Explaining the EUA-CER Spread
Because of a link between the EU ETS and the Kyoto Flexible Mechanisms, the emission certificates traded on these markets are in principle interchangeable assets; despite of this, a persistent price difference exists. We explain this price spread using a theoretical model that combines three features: A binding limit for the use of Kyoto offsets within the EU ETS; a disconnect between the price of offsets and their marginal cost of production due to institutional reasons; and uncertainty about future supply and demand of offsets. Our model expresses the offset price as an average of the EUA price and an offset’s outside value, weighted by the probability of a binding import limit. Using a detailed dataset on expected offset supply and demand, we provide empirical support for our theory of offset price formation. In addition, we find evidence for informational frictions governing the use of offsets within the EU ETS.
- Language
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Englisch
- Bibliographic citation
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Series: CESifo Working Paper ; No. 5795
- Classification
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Wirtschaft
Commodity Markets
Climate; Natural Disasters and Their Management; Global Warming
Environmental Economics: Government Policy
- Subject
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EU ETS
clean development mechanism
offset demand
EUA-CER spread
- Event
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Geistige Schöpfung
- (who)
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Gronwald, Marc
Hintermann, Beat
- Event
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Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
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Munich
- (when)
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2016
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Gronwald, Marc
- Hintermann, Beat
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2016