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Cross Border Trading and Borrowing in the EU ETS

A. Denny Ellerman and Raphael Trotignon

Year: 2009
Volume: Volume 30
Number: Special Issue #2
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-NoSI2-4
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Abstract:
Cross Border Trading and Borrowing in the EU ETS A. Denny Ellerman* and Raphael Trotignon** This paper exploits a little used data resource within the central registry of the European Union�s Emissions Trading System (EU ETS) to analyze cross border trading and inter-year borrowing during the first trading period (2005- 2007). Cross-border flows were small in the aggregate but remarkably frequent in matching allowance deficits and surpluses at the installation level throughout the EU. These data also indicate that a novel feature of the EU ETS�the ability to borrow allowances from the forward allocation to satisfy current compliance requirements�was also used. These data provide evidence that the precondition of efficient abatement in a cap-and-trade system�widespread use of trading opportunities�was present in the first period of the EU ETS.



European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007)

Emilie Alberola and Julien Chevallier

Year: 2009
Volume: Volume 30
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No3-3
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Abstract:
The price of European Union Allowances (EUAs) has been declining at far lower levels than expected during Phase I (2005-2007). Previous literature identifies among its main explanations over-allocation concerns, early abatement efforts in 2005, and possibly decreasing abatement costs in 2006. We advocate low allowance prices may also be explained by banking restrictions between 2007 and 2008. Based on a Hotelling-CAPM analysis, we provide statistical evidence that the French and Polish decisions to ban banking contribute to the explanation of low EUA Phase I prices. Besides, we provide the first rigorous empirical verification that the cost-of-carry relationship between EUA spot and futures prices for delivery during Phase II does not hold after the enforcement of the inter-period banking restrictions. This situation may be interpreted as a sacrifice of the temporal flexibility offered to industrials in Phase I to correct design inefficiencies, and achieve an efficient price pattern in Phase II.





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