The Korean Journal of Economic Studies
The Effect of Allowance Oversupply on Carbon Pricing in the EU Emissions Trading System
Leesle Hong (World Bank), Hyungna Oh (Kyung Hee University), Jong Ho Hong (Seoul National University)Year 2016Vol. 64No. 3
Although the ‘over-allocation’ of allowances in EU-ETS has been noted as amajor cause of carbon price crash in phase I, few studies have analyzedquantitatively the issue of over-allocation in the formation of carbon prices. Inthis study, we employ new variables such as over-allocation and intra-phaseborrowing in our regression model along with other price determinants. Basedon the literature, the amount of over-allocation was calculated by comparingthe cap to Business-as-Usual emissions. The over-allocation, stock priceindex, clean dark/spark spread, the interaction term of stock price index andclean dark/spark spread, oil price, and extreme weathers are found to bestatistically significant.