Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/226802 
Year of Publication: 
2020
Series/Report no.: 
ifo Working Paper No. 338
Publisher: 
ifo Institute - Leibniz Institute for Economic Research at the University of Munich, Munich
Abstract: 
The EU implemented the Market Stability Reserve (MSR) in response to the 2008 financial crisis to deal with short-term impacts of future shocks, such as the COVID-19 pandemic. We link a model that intertemporally optimizes the handling of banked allowances every five years with one that simulates the annual working of the EU ETS including the MSR with its potential cancelling. Neglecting the pandemic, 2.16 billion allowances are cancelled. Accounting for the pandemic, 0.28 billion additional allowances are cancelled if the European economy fully recovers by 2021, which even overcompensates the 2020 drop in CO2 emissions. Additional cancelling increases when the pandemics lasts longer, meaning that the MSR even outperforms its initial purpose.
Subjects: 
COVID-19 pandemic
EU ETS
Market Stability Reserve
Decarbonization
JEL: 
C61
H23
Q41
Q51
Q54
Q58
Document Type: 
Working Paper

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