Emissions Compliances and Carbon Prices under the EU ETS: A Country Specific Analysis of Industrial Sectors

摘要

The EUA price collapse that occurred in April, 2006 showed evidence that when the cap is not stringent enough, emissions trading schemes do not necessarily guarantee a carbon price high enough to provide incentives to reduce CO_2 emissions. This particular episode of the EU ETS highlights the necessity to understand the underlying mechanisms of carbon price changes. Theoretical studies have clearly identified three types of carbon price fundamentals: institutional design issues, energy prices and temperatures events. The empirical analysis of the daily spot carbon price conducted in this article evaluates the impact of these fundamentals during the EU ETS pilot phase (2005-2007), and besides the influence of the institutional context. Previous literature identifies energy prices, temperatures events and institutional information variables as EUA carbon price drivers during 2005-2007. In this article, the analysis of EU ETS price drivers is taken one step further by investigating (ⅰ) whether the variations of industrial production in sectors covered by the EU ETS may also have an impact on CO_2 price changes and (ⅱ) the effects of production peaks and net short/long compliance positions through which these variations may operate. As both the European Commission and market participants experienced difficulties in assessing the gap between allowance allocation and industrial emissions forecasts, such analysis may only be conducted around compliance events.