Causes of the EU ETS price drop: Recession, CDM, renewable policies or a bit of everything? - New evidence

Koch N, Fuss S, Grosjean G, & Edenhofer O (2014). Causes of the EU ETS price drop: Recession, CDM, renewable policies or a bit of everything? - New evidence. Energy Policy 73: 676-685. DOI:10.1016/j.enpol.2014.06.024.

Full text not available from this repository.

Abstract

The price of EU allowances (EUAs) in the EU Emissions Trading Scheme (EU ETS) fell from almost 30 Euros/tCO2 in mid-2008 to less than 5 Euros/tCO2 in mid-2013. The sharp and persistent price decline has sparked intense debates both in academia and among policy-makers about the decisive allowance price drivers. In this paper we examine whether and to what extent the EUA price drop can be justified by three commonly identified explanatory factors: the economic recession, renewable policies and the use of international credits. Capitalizing on marginal abatement cost theory and a broadly extended data set, we find that only variations in economic activity and the growth of wind and solar electricity production are robustly explaining EUA price dynamics. Contrary to simulation-based analyses, our results point to moderate interaction effects between the overlapping EU ETS and renewable policies. The bottom line, however, is that 90% of the variations of EUA price changes remains unexplained by the abatement-related fundamentals. Together, our findings do not support the widely-held view that negative demand shocks are the main cause of the weak carbon price signal. In view of the new evidence, we evaluate the EU ETS reform options which are currently discussed.

Item Type: Article
Uncontrolled Keywords: EU ETS; Carbon price; Renewables
Research Programs: Ecosystems Services and Management (ESM)
Bibliographic Reference: Energy Policy; 73:676-685 (October 2014) (Published online 11 July 2014)
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 08:50
Last Modified: 24 Aug 2016 11:34
URI: http://pure.iiasa.ac.at/10876

Actions (login required)

View Item View Item

International Institute for Applied Systems Analysis (IIASA)
Schlossplatz 1, A-2361 Laxenburg, Austria
Phone: (+43 2236) 807 0 Fax:(+43 2236) 71 313