Environmental Engineering Reference
In-Depth Information
Chapter 12
Price Relationships in the EU
Emissions Trading System
Julien Chevallier
1
Université Paris Dauphine, France
ABSTRACT
The European Union Emissions Trading Scheme (EU ETS) constrains industrial polluters to buy/sell CO
2
allowances depending on a regional depolluting objective of -8% of CO
2
emissions by 2012 compared to
1990 levels. Companies may also buy carbon offsets from developing countries, funding emissions cuts
there instead, under a Kyoto Protocol Clean Development Mechanism (CDM). This chapter critically
analyzes the price relationships in the EU emissions trading system. The United Nations Framework
Convention on Climate Change (UNFCCC) delivers credits that may be used by European companies
for their compliance needs. Certified Emissions Reductions (CERs) from CDM projects are credits
flowing into the global compliance market generated through emission reductions. EUAs (European
Union Allowances) are the tradable unit under the EU ETS. Besides, the EU Linking Directive allows
the import for compliance into the EU ETS up to 13.4% of CERs on average. This chapter details the
idiosyncratic risks affecting each emissions market, be it in terms of regulatory uncertainty, economic
activity, industrial structure, or the impact of other energy markets. Besides, based on a careful analysis
of the EUA and CER price paths, this chapter assesses common risk factors by focusing more particularly
on the role played by the CER import limit within the ETS.
INTRODUCTION
specified emissions cap. Companies may cut the
costs imposed on the industry by buying relatively
cheaper carbon offsets from developing countries,
funding emissions cuts there instead, under the
Kyoto Protocol's Clean Development Mechanism
(CDM). As the latest Intergovernmental Panel on
Climate Change (IPCC, 2007) report pointed out
The Emissions Trading Scheme (ETS) is the
EU's flagship climate policy, forcing industrial
polluters to buy/sell CO
2
allowances above a pre-
