The emissions trading paradox
Publication date
2010-04-01
Document type
Forschungsartikel
Author
Letmathe, Peter
Organisational unit
Institute of Information Systems, University of Siegen
Scopus ID
Publisher
Elsevier BV
Series or journal
European Journal of Operational Research
ISSN
Periodical volume
202
Periodical issue
1
First page
248
Last page
254
Part of the university bibliography
Nein
Language
English
Keyword
Banking
Cooperative game theory
Decision analysis
Emissions trading
Energy
Abstract
This article considers the price history of CO₂ allowances in the EU Emission Trading Scheme. Since European Emissions Trading started in 2005, the prices of allowances have varied between less than one and thirty Euro per ton of CO₂. This previously unpredicted volatility and, more notably, a significant price crash in May 2005 led to the hypothesis that electricity producers might use their market power to influence the prices of allowances. Besides market power, the combination of information asymmetry and price interdependencies (between prices of primary goods - especially electricity - and allowances) plays an important role in explaining the emissions trading paradox. The model presented will show that banking can lead to such a price crash if market participators act rationally. Furthermore, in such a scenario banking can be profitable for sellers at the cost of buyers. © 2009 Elsevier B.V. All rights reserved.
Version
Published version
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