The Economics of the EU ETS Market Stability Reserve

Date: 28 September 2016

The European Union Emissions Trading System (EU ETS) is currently the largest carbon trading system in the world, unless and until it is overtaken by the Chinese national carbon trading scheme planned for introduction in 2017 (Jotzo and Löschel, 2014; Zhang et al., 2014). Although the EU ETS is meeting its core objective – EU emissions covered by the scheme remain below the total emissions cap – it is sometimes described as having ‘failed’ because prices are too low to incentivise substantial short-run emissions reductions and too volatile to provide adequate long-run incentives for investments in clean technologies. European Allowances (EUAs) – the unit of compliance – have traded below €10 from 2013 onwards (EEX 2016). The price is below most estimates of the social cost of carbon for example as used in US government regulatory analysis (Greenstone et al., 2014; Goulder and Williams, 2012; United States Interagency Group, 2015). It is also low relative to the ...

Cameron Hepburn Frank Jotzo Karsten Neuhoff William Acworth Dallas Burtraw

Economics of Sustainability

The economics of the EU ETS market stability reserve


Type: paper

Hepburn, C., Neuhoff, K., Acworth, W., Burtraw, D. & Jotzo, F. (2016). 'The Economics of the EU ETS Market Stability Reserve'. Journal of Environmental Economics and Management, 80, pp.1-5


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