Temporal restrictions on emissions trading and the implications for the carbon futures market: Lessons from the EU emissions trading scheme

Temporal restrictions on emissions trading and the implications for the carbon futures market:... Prohibiting the intertemporal trading of emission allowances induces positive risk premia in futures prices when the trading of the contracts and their expiry take place in time periods separated by this trading ban. In Phase I of the EU Emissions Trading Scheme (EU ETS) these were in the order of about 28% of the futures price on average, depending on the contract's expiry in Phase II. Environmental policy makers should avoid such restrictions as they result in increased hedging costs for polluters that are, since emission allowances represent opportunity costs, potentially borne by consumers. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Energy Policy Elsevier

Temporal restrictions on emissions trading and the implications for the carbon futures market: Lessons from the EU emissions trading scheme

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Publisher
Elsevier
Copyright
Copyright © 2018 Elsevier Ltd
ISSN
0301-4215
D.O.I.
10.1016/j.enpol.2018.01.008
Publisher site
See Article on Publisher Site

Abstract

Prohibiting the intertemporal trading of emission allowances induces positive risk premia in futures prices when the trading of the contracts and their expiry take place in time periods separated by this trading ban. In Phase I of the EU Emissions Trading Scheme (EU ETS) these were in the order of about 28% of the futures price on average, depending on the contract's expiry in Phase II. Environmental policy makers should avoid such restrictions as they result in increased hedging costs for polluters that are, since emission allowances represent opportunity costs, potentially borne by consumers.

Journal

Energy PolicyElsevier

Published: Apr 1, 2018

References

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