Benz, Eva: The Price of CO2 Allowances in the European Greenhouse Gas Emissions Trading Scheme : An Empirical, Experimental, and Theoretical Study. - Bonn, 2008. - Dissertation, Rheinische Friedrich-Wilhelms-Universität Bonn.
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author = {{Eva Benz}},
title = {The Price of CO2 Allowances in the European Greenhouse Gas Emissions Trading Scheme : An Empirical, Experimental, and Theoretical Study},
school = {Rheinische Friedrich-Wilhelms-Universität Bonn},
year = 2008,
note = {According to the common position of the European Council, large installations from the energy industry and other carbon-intensive industries are part of an EU-wide greenhouse gas (GHG) emissions trading scheme (EU ETS) that formally has entered into operation in January 2005. So far it is the world's largest GHG emissions trading system covering over 10,000 installations in the energy and industrial sectors that are collectively responsible for about 50% of Europe's CO2 emissions and 40% of its total GHG emissions. It is considered as the cornerstone of the European Climate Change Programme and is expected to help achieving the EU's obligations under the United Nations Framework Convention on Climate Change and the Kyoto Protocol in a cost-effective way.
This dissertation sheds light on the price of CO2 emission allowances by using empirical and experimental analysis as well as theoretical models. In particular, it examines the European Union Allowance (EUA) price pattern that has evolved in Phase 1 (2005-2007). For this purpose the first two chapters provide an empirical analysis of EUA prices by studying daily spot prices and high frequency data for futures prices. Short-term dynamics of spot prices are of particular interest for market participants like risk managers or traders, but also for CO2 emitting companies, as they must model the behavior of their production costs. The results strongly support the use of AR-GARCH or regime-switching models for modeling the returns of CO2 emission allowances.
The intraday analysis is concerned with the price discovery process and bid-ask spreads on the two mayor trading platform for EUA futures to study the operational efficiency of the new evolving market. The study reveals that while estimated transaction costs are always lower on the larger exchange, the less liquid platform also contributes to price discovery, especially during the first months of trading. Overall, results indicate that from 2005 to 2007 liquidity in the European CO2 futures market has markedly increased and organized trading has rapidly expanded.
The last chapter analyzes CO2 allowance prices that evolve under different policy and market behavior scenarios in order to give recommendations for a viable trading scheme in Phase 3. Hereby, a laboratory experiment is concerned with the annual initial allocation process of EUAs to the participating firms where the focus is on using auctioning as (part of the) allocation mechanism. The hypotheses for the analysis of the experimental data are derived from a theoretical model that is in line with the experimental setup. Chapter three is motivated by the “Climate action and renewable energy package” proposed by the European Commission in the beginning of 2008 suggests auctioning as basic principle for allocation for the upcoming third trading phase of the EU ETS that runs from 2013 to 2020. The chapter concludes that the simultaneous uniform double auction in its dynamic form is able to fulfil best the criteria to a viable allocation rule for Phase 3 of the EU ETS.
The dissertation concludes that as the design for EUA market platforms seems to work and as at least some form of operational efficiency has been achieved in the market, the regulatory authorities can concentrate more on issues like the initial allocation process for the EU ETS that have not yet been solved for the upcoming Phase 3.},

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