Preprint
EU carbon prices signal high policy credibility and farsighted actors
Carbon prices in the EU emissions trading system (EU ETS) are a key instrument driving Europe’s decarbonization. Between 2017 and 2021, they surged tenfold, exceeding 80 €/tCO2 and reshaping investment decisions across the electricity and industry sectors. What has driven this increase is an open question. While it coincided with two significant reforms tightening the cap (“MSR reform” and “Fit for 55”), we argue that a reduced supply of allowances alone cannot fully explain the price rise. A further crucial aspect is that actors must have become more farsighted as the reform signaled policymakers’ credible long-term commitment to climate targets. This is consistent with model results that show historic prices can be better explained with myopic actors, while explaining prices after the reforms requires actors to be farsighted. To underline the role of credibility, we test what would happen if a crisis undermines policy credibility such that actors become myopic again, demonstrating that carbon prices could plummet and endanger the energy transition.
- Language
-
Englisch
- Classification
-
Wirtschaft
Energy: Government Policy
Environmental Economics: Government Policy
Expectations; Speculations
Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
Positive Analysis of Policy Formulation and Implementation
- Subject
-
Carbon prices
EU Emissions Trading System (EU ETS)
Myopia
Foresight
Market Stability Reserve (MSR)
Policy Credibility
European Green Deal
Electricity Decarbonization
- Event
-
Geistige Schöpfung
- (who)
-
Sitarz, Joanna
Pahle, Michael
Osorio, Sebastian
Luderer, Gunnar
Pietzcker, Robert
- Event
-
Veröffentlichung
- (who)
-
ZBW – Leibniz Information Centre for Economics
- (where)
-
Kiel, Hamburg
- (when)
-
2023
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the 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
- Preprint
Associated
- Sitarz, Joanna
- Pahle, Michael
- Osorio, Sebastian
- Luderer, Gunnar
- Pietzcker, Robert
- ZBW – Leibniz Information Centre for Economics
Time of origin
- 2023
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