Allowance Price Drivers in the First Phase of the EU ETS

In the first phase of the EU Emissions Trading Scheme (EU ETS), the price per ton of CO2 rose to over €30 before decreasing to zero by mid 2007. I examine to what extent this variation can be explained by marginal abatement costs by deriving a structural model of the allowance price under the assumption of efficient markets. I then gradually relax the model by allowing for delayed adjustment of price to fundamentals, as well as by introducing lagged LHS variables. The pattern of the results suggests that prices were not initially driven by marginal abatement costs, but that this inefficiency was largely corrected by the first round of emission verifications.Emissions permit markets, air pollution, climate change, bubble, speculation, CO2, asset pricing, EU ETS

Market Power and Windfall Profits in Emission Permit Markets

Although market power in permit markets has been examined in some detail following the seminal work of Hahn (1984), the effect of free allocation on price manipulation with market power in both output and permit market has not specifically been addressed. I show that in this case, the threshold for free allocation above which dominant firms will increase the permit price is below their emissions. In addition to being of general economic interest, this issue is relevant in the context of the EUETS. I find that European power generators received free allowances in excess of the derived threshold.Market power, emissions permit markets, air pollution, EU ETS, CO2, electricity generation, permit allocation, windfall profits, cost pass-through

An Options Pricing Approach for CO2 Allowances in the EU ETS

If firms are unable to fully control their emissions, the cap in a permit market may be exceeded. Using stochastic aggregate emissions as the underlying I derive an options pricing formula that expresses the permit price as a function of the penalty for noncompliance and the probability of a binding cap. I apply my model to the EU ETS, where rapid market setup made it difficult for firms to adjust their production technology in time for phase 1. The model fits the data well, implying that the permit price was driven by firms hedging against stochastic emissions rather than marginal abatement costs.Permit markets, air pollution, climate change, CO2, options pricing, EU ETS

Market Effects of Voluntary Climate Action by Firms: Evidence from the Chicago Climate Exchange

Why do for-profit firms take voluntary steps to improve the environment? Brand appeal to green consumers or investors, the ability to influence or avoid regulation, or the experience gained for future regulation, have all been suggested as possible reasons. The empirical evidence is decidedly mixed. This paper uses 19 years of monthly stock price returns to examine the profitability of participation in the world’s largest voluntary greenhouse gas mitigation program: the Chicago Climate Exchange. After controlling for systemic market risk as well as industry-specific shocks, we find no statistically significant impact of announcing to join CCX on excess returns. However, the market appeared to be sensitive to changes in abatement costs implied by CCX membership. Most strikingly, the progress of proposed greenhouse gas legislation (the Waxman-Markey bill) had a positive impact on excess returns for CCX member firms, suggesting that the most profitable incentive for firms to join CCX is to prepare for future regulation. Our results imply that relying on voluntary approaches alone to combat climate change may not be enough.voluntary action, firm performance, climate change, permit markets

Market Power, Permit Allocation and Efficiency in Emission Permit Markets

Market power in permit markets has been examined in some detail following the seminal work of Hahn (Q J Econ 99(4):753-765, 1984), but the effect of free allocation on price manipulation with market power in both product and permit market has not been fully addressed. I show that in this case, the threshold of free allocation above which a dominant firm will set the permit price above its marginal abatement costs is below its optimal emissions in a competitive market, and that overall efficiency cannot be achieved by means of permit allocation alone. In addition to being of general economic interest, this issue is relevant in the context of the EU ETS. I find that the largest German, UK and Nordpool power generators received free allowances in excess of the derived threshold. Conditional on having price-setting power in both the electricity and permit markets, these firms would have found it profitable to manipulate the permit price upwards despite being net permit buyer

Pricing emission permits in the absence of abatement

If emissions are stochastic and firms are unable to control them through abatement, the cap in a permit market may be exceeded, or not be reached.  I derive a binary options pricing formula that expresses the permit price as a function of the penalty for noncompliance and the probability of an exceeded cap under the assumption of no abatement.  I apply my model to the EU ETS, where the rapid introduction of the market made it difficult for firms to adjust their production technology in time for phase 1.  The model fits the data well, implying that the permit price was at least partly driven by firms hedging against stochastic emissions

Anatomische Rekonstruktion des Außenbandkomplexes am Sprunggelenk

Zusammenfassung: Operationsziel: Rekonstruktion der Ligamenta fibulotalare anterius und fibulocalcaneare zur Wiederherstellung der Bandstabilität und Funktion in den Sprunggelenken. Indikationen: Chronische Verletzungsfolgen mit Instabilität und Beschwerden, konservativ nicht behebbar. Fehlendes Bandmaterial zur Rekonstruktion. Kontraindikationen: Konstitutionelle Laxität der Sprunggelenkbänder. Calcaneus varus ohne gleichzeitige Korrektur. Periphere Gefäßerkrankungen. Operationstechnik: Rekonstruktion der Bänder mit Hilfe eines etwa 18 cm langen Transplantats aus der Plantarissehne oder bei deren Fehlen aus den Zehenstrecksehnen III und IV. Das Transplantat wird über Bohrkanäle im Außenknöchel, Talushals und Kalkaneus an die anatomischen Ursprünge und Insertionen geführt und unter leichter Spannung mit sich selbst vernäht. Bandreste werden miteinbezogen. Ergebnisse: 42 Patienten mit 44 Sprunggelenken wurden operiert. 41 Patienten mit 43 Sprunggelenken konnten im Mittel nach 32 Monaten (neun bis 98 Monate) nachkontrolliert werden. 39 operierte Patienten (41 Sprunggelenke) waren sportlich so aktiv wie vor dem Eingriff; zwei Patienten (zwei Sprunggelenke) stellten ihre Sportaktivitäten aus anderen Gründen ein. Einer der 42 Patienten hatte postoperativ erneut ein schweres Distorsionstrauma erlitten, das unter konservativer Behandlung vollständig heilte. Nach dem <<Ankle-Hindfoot-Scale” (Tablelle 1) erreichten die 41 Patienten (43 Sprunggelenke) einen Punktwert von 98,

Pass-through of CO2 Emission Costs to Hourly Electricity Prices in Germany

I estimate the level of emissions cost pass-through to hourly wholesale electricity prices in Germany, based on spot market data. I control for contemporaneous shocks to demand and supply by constructing a detailed supply curve for fossil generation, and intersecting it with residual demand for fossil-based electricity for every hour. Determining the marginal generator allows me to use marginal fuel and carbon costs (rather than prices) as explanatory variables in order to identify the level of cost pass-through directly and with a high level of precision. I find that carbon costs are passed through to electricity prices by at least 84 %, with a central range of 98 %104 % for different load periods. My results suggest that there is no economic reason for free allowance allocation to the electricity sector, and thus validate the updated allocation rules in Phase 3 of the European Union Emissions Trading Scheme

Market Power in Emission Permit Markets: Theory and Evidence

A well-known result about market power in emission permit markets is that efficiency can be achieved by full free allocation to the dominant firm. I show that this result breaks down when taking the interaction between input and output markets into account, even if the firm perceives market power in the permit market alone. In fact, the dominant firm may have an incentive to inflate the permit price even if it receives no free permits at all. I examine the empirical evidence for price manipulation by large electricity firms during Phase I of the EU ETS. I find that the pattern and extent of firms' allowance holdings are consistent with strategic price manipulation, and they appear unlikely to be the result of precautionary purchases due to carbon risk

Learning abatement costs: On the dynamics of optimal regulation of experience goods

We study the introduction of new technologies when their costs are subject to idiosyncratic uncertainty and can only be fully learned through individual experience. We set up a dynamic model of clean experience goods that replace old polluting consumption options and show how optimal regulation evolves over time. In our base setting where social and private learning incentives coincide, the optimal tax of the polluting consumption is increasing over time. However, if social and private learning incentives diverge, we show that it will be optimal to temporarily increase the tax rate beyond net marginal external damages to induce optimal learning, before reducing the tax rate to the steady-state level. Alternatively, one needs to complement the tax by subsidies for first-time users which will be phased out over time. Similar results apply if consumers have biased expectations. We therefore give a rationale for introductory subsidies of new, clean technologies and non-monotonic tax paths from a perspective of consumer learning