Liquidity Effects on Carbon Financial Instruments in the EU Emissions Trading Scheme: New Evidence from the Kyoto Commitment Phase
30 Pages Posted: 16 Jul 2011 Last revised: 12 Jan 2014
Date Written: July 2, 2011
Abstract
The EU Emissions Trading Scheme (EU-ETS), the major policy tool of the EU for achieving its Kyoto target, is the largest pollution permit market in the world. Following the lessons learned from the trial phase (2005-2007), new measures were adopted for the Kyoto commitment period (2008-2012) in order to enhance market quality, thereby reducing emissions. This study explores liquidity effects after the introduction of the new regime of rules for Kyoto commitment period. It finds evidence of a sustained increase in the liquidity of the carbon permits as a result of the new trading rules. However, we also find evidence of reductions in liquidity following regulatory changes after the commencement of the current phase.
Keywords: European Union Emissions Trading Scheme, Greenhouse Gas Emissions, Liquidity, Climate Change
JEL Classification: G10, G14, G18
Suggested Citation: Suggested Citation
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