Universität zu Köln

Bocklet, Johanna (2021). Essays on the Market Design of the EU Emissions Trading System. PhD thesis, Universität zu Köln.

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Abstract

This thesis studies the economics and the market design of the European Union Emissions Trading System (EU ETS). It entails four essays. Chapter 2 analyses the empirical literature on carbon leakage in the EU ETS and thereby assesses the effectiveness of EU ETS regulation in reducing global CO2 emissions. The results show that ETS regulation and market developments, particularly low carbon prices, caused low carbon leakage in the past. Due to a change in carbon leakage regulation and higher expected prices, this might change in the future. The remaining three chapters use a partial equilibrium model of the EU ETS that accurately depicts current EU ETS regulation. The model set up in chapter 2 assumes perfectly rational actors and is used to evaluate the cost-effectiveness of the latest EU ETS amendments. These comprise of the introduction of a Market Stability Reserve, a Cancellation Mechanism, and the tightening of the allowance cap through the increase of the Linear Reduction Factor. The results indicate that the Market Stability Reserve shifts allowances to the future but preserves them over time, decreasing the cost-effectiveness of the market. While the Cancellation Mechanism reduces the overall allowance supply by roughly 2 billion allowances, the increase of the Linear Reduction Factor has the largest impact on market results and is hence considered the key driver of the reforms. Chapter 3 amends the model built in the previous chapter as it deviates from the assumption of perfectly rational market participants. Firms are assumed to be myopic and risk averse. Given these two forms of bounded rationality, the historic market outcomes in Phase III of the EU ETS can be replicated. The steep price increase and the large private bank seen in the market can, thus, be explained by the reform fundamentals. Chapter 4 evaluates the EU ETS in light of the Corona pandemic, which serves as an unforeseen economic shock to the European economy. The model results show that due to the endogenous supply adjustment of the Market Stability Reserve and the Cancellation Mechanism, COVID-19 decreases emissions in the EU ETS in the long run. This holds, even if the crisis is followed by an economic expansion in the same or even large magnitude. Further, the Market Stability increases the market’s resilience towards shocks as it increases the relative price stability of the EU ETS.

Item Type:	Thesis (PhD thesis)
Creators:	Creators Email ORCID ORCID Put Code Bocklet, Johanna bocklet.johanna@gmail.com UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-543714
Date:	2021
Language:	English
Faculty:	Faculty of Management, Economy and Social Sciences
Divisions:	Faculty of Management, Economics and Social Sciences > Economics > Microeconomics, Institutions and markets > Professorship for Energy and Environmental Economics
Subjects:	Economics
Uncontrolled Keywords:	Keywords Language Emissions Trading English EU ETS UNSPECIFIED Intertemporal Optimization English Hotelling UNSPECIFIED Myopia English Hedging UNSPECIFIED Risk Aversion English Market Stability Reserve English Cancellation Mechanism English Cap and Trade English Carbon Leakage English Emissionshandel German Marktstabilitätsreserve German Carbon Pricing English
Date of oral exam:	22 December 2021
Referee:	Name Academic Title Bettzüge, Marc Oliver Prof. Dr. Bierbrauer, Felix Prof. Dr.
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/54371