Financials Threaten To Undermine the Functioning of Emissions Markets

26 Pages Posted: 15 Dec 2021 Last revised: 24 Mar 2022

See all articles by Simon Quemin

Simon Quemin

Potsdam Institute for Climate Impact Research (PIK); London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment; Climate Economics Chair, Paris-Dauphine University PSL; EDF R&D, EDF Lab Paris Saclay, SYSTEME Department

Michael Pahle

Potsdam Institute for Climate Impact Research (PIK)

Date Written: March 24, 2022

Abstract

The participation of financial actors is a key design issue in all emissions allowance markets. While financials perform several necessary market functions, excessive speculation may undermine market functioning. The potential for harm is gaining prominence as tighter emissions limits increasingly attract speculators and investors into allowance markets worldwide. However, adequate warning systems and tools to appraise the beneficial and detrimental facets of financial trading are wanting. We develop the first elements of a diagnostic toolbox to assess the scale and impacts of speculation and apply it to the EU emissions trading system. Our work is a first step towards informing current policy debates and invites further research to establish speculation-monitoring systems for allowance markets.

Suggested Citation

Quemin, Simon and Pahle, Michael, Financials Threaten To Undermine the Functioning of Emissions Markets (March 24, 2022). Available at SSRN: https://ssrn.com/abstract=3985079 or http://dx.doi.org/10.2139/ssrn.3985079

Simon Quemin (Contact Author)

Potsdam Institute for Climate Impact Research (PIK) ( email )

Telegrafenberg A31
Potsdam, 14473
Germany

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment

Houghton Street
London, WC2A 2AE
Great Britain

Climate Economics Chair, Paris-Dauphine University PSL

EDF R&D, EDF Lab Paris Saclay, SYSTEME Department

Paris
France

Michael Pahle

Potsdam Institute for Climate Impact Research (PIK) ( email )

Telegrafenberg 31
Potsdam, Brandenburg 14473
Germany

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