Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260447 
Year of Publication: 
2017
Series/Report no.: 
WiSo-HH Working Paper Series No. 44
Publisher: 
Universität Hamburg, Fakultät für Wirtschafts- und Sozialwissenschaften, WiSo-Forschungslabor, Hamburg
Abstract: 
Postponing the issue date of allowances in a cap-and-trade scheme as instituted e.g. in the Market Stability Reserve (MSR) of the EU ETS has an impact on abatement technology adoption. Stimulating low-carbon investments is a key objective of the MSR. We show that postponing allowances has an ambiguous effect on investments. By constraining intertemporal arbitrage, it shifts investments towards short-term reductions. Long-term investments are deterred. Reform proposals for Phase IV of the EU ETS are suitable to counteract the negative effects of the MSR on long-term investments but undermine the very idea of the MSR. The effects crucially depend on how firms form expectations about future allowance prices.
Document Type: 
Working Paper

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