Economics, Econometrics and Finance
4 years ago

Postponing allowance allocations in EU ETS may increase price volatility.

SSRN Electronic Journal
Postponing Auctioning Versus Cancellation of Allowances in the EU ETS
Eva-Maria Mauer, Samuel J Okullo, Michael Pahle

Paper Summary

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The EU Emission Trading System was reformed to address low prices and volatility by reducing the cap and strengthening the Market Stability Reserve. Postponing allowance allocations through the MSR can be as important as cancellation. The MSR increases price volatility, suggesting that managing allowance availability in response to shocks was overlooked in the reforms.