On the impacts of allowance banking and the financial sector on the EU Emissions Trading System
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(2020) 5:34
CONFERENCE PAPER
On the impacts of allowance banking and the financial sector on the EU Emissions Trading System Sotirios Dimos1 · Eleni Evangelatou1 · Dimitris Fotakis1 · Andreas Mantis1 · Angeliki Mathioudaki1 Received: 29 November 2019 / Accepted: 19 May 2020 © Springer Nature Switzerland AG 2020
Abstract The European Union Emissions Trading System (EU ETS) is the largest cap-and-trade system in the world. Price instability and allowance oversupply are two characteristics that affect the objectives and the efficiency of this policy. In this work, we investigate the impact of storing allowances (“banking”) on the allowance price and the power of the financial sector in the trading network of the ETS. To that end, we use data from the EU Transaction Log (EUTL) along with data on the most important allowance price determinants. We apply a multiple regression analysis that considers many important price determinants that are both endogenous and exogenous to the ETS, and quantify how the allowance price depends on the total volume of stored allowances. Our analysis indicates that banking is a notable—though not the dominant—price determinant, and quantifies its significance. Moreover, we study the role of financial nodes in the ETS trading network. Analyzing the betweenness centrality of financial, regulated, and governmental entities in the trading network of ETS over a period of more than 10 years, we provide strong evidence of the significant power of financial entities in the ETS trading network, which arises due to their role as intermediaries in allowance trading. Our work could provide the basis for a compact and relatively simple tool to evaluate and estimate the performance of one of the most prominent environmental policies, the EU ETS. Keywords Emission trading system · EUA banking · Allowance price · Multiple linear regression · ETS trading network
Communicated by Dimitra Vagiona, Lead Guest Editor. This research was carried out/funded in the context of the project “Applications of Reverse Greedy Mechanisms to Social Choice problems” (MIS 5004766) under the call for proposals “Supporting Researchers with Emphasis on New Researchers” (EDULLL 34). The project was cofinanced by Greece and the European Union (European Social Fund, ESF) through the operational program “Human Resources Development, Education and Lifelong Learning 2014–2020.” * Sotirios Dimos [email protected] Eleni Evangelatou [email protected] Dimitris Fotakis [email protected] Andreas Mantis [email protected] Angeliki Mathioudaki [email protected] 1
School of Electrical and Computer Engineering, National Technical University of Athens, Iroon Polytechniou 9, 157 80 Athens, Greece
Introduction The European Union Emissions Trading System (EU ETS) (European Parliament 2003) was introduced in 2005 as the main tool for European countries to meet the obligations of the Kyoto Protocol (United Nations 1998). It is a complex multinational cap-and-trade system, the largest of its kind in the world. The E
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