Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/227505
Authors: 
Bocklet, Johanna
Hintermayer, Martin
Year of Publication: 
2020
Series/Report no.: 
EWI Working Paper No. 20/01
Abstract: 
This paper uses a discrete-time partial equilibrium model of the European Emissions Trading System (EU ETS)to analyze the impact of the recent reform on allowance prices. By including bounded rationality such as myopia or hedging requirements, we find that the Hotelling price path is no longer visible ex-post even though the Hotelling price rule holds ex-ante in the decision making of the firms. Myopia and hedging requirements have little impact in the pre-reform market but strongly drive market outcomes after the reform. In the post-reform market, hedging requirements in combination with restrictive allowance supply may even cause a physical shortage of allowances. Yet, neither form of bounded rationality can fully explain the market outcomes in the third trading period of the EU ETS. If myopia and hedging requirements are considered simultaneously, the price increase in the EU ETS can beat tributed to the reform fundamentals.
Subjects: 
Dynamic Optimization
EU ETS
Bounded Rationality
Hotelling
Hedging
Myopia
JEL: 
D25
D91
H32
Q58
Document Type: 
Working Paper

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