Markets for Carbon and Power Pricing in Europe: Theoretical Issues and Empirical Analyses

摘要

The European emissions trading system (EU-ETS) that came into existence in 2005 is one of the main instruments being used in the European Union to limit greenhouse gas emission emissions. The power sector, being one of the main contributors to carbon-dioxide (CO_2) emissions, is a major target industry under the EU-ETS. The participants in the EU-ETS have received certain amounts of tradable permits free of charge subject to a pan-European cap set by the European Commission. Each participant is required to surrender permits equivalent to their annual volume of emissions and can trade the balance, if any. This mechanism was expected to create a market for carbon that would determine the carbon price through a competitive process. However, it was observed that some participating electric utilities have managed to increase their profits, implying some sort of emissions trading windfall gain for them.