Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130411
Authors: 
Gronwald, Marc
Hintermann, Beat
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 5795
Abstract: 
Because of a link between the EU ETS and the Kyoto Flexible Mechanisms, the emission certificates traded on these markets are in principle interchangeable assets; despite of this, a persistent price difference exists. We explain this price spread using a theoretical model that combines three features: A binding limit for the use of Kyoto offsets within the EU ETS; a disconnect between the price of offsets and their marginal cost of production due to institutional reasons; and uncertainty about future supply and demand of offsets. Our model expresses the offset price as an average of the EUA price and an offset’s outside value, weighted by the probability of a binding import limit. Using a detailed dataset on expected offset supply and demand, we provide empirical support for our theory of offset price formation. In addition, we find evidence for informational frictions governing the use of offsets within the EU ETS.
Subjects: 
EU ETS
clean development mechanism
offset demand
EUA-CER spread
JEL: 
Q02
Q54
Q58
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.