Creative Commons

Over the last years the combat against climate change has become a top priority for the European Union. The European Union Emission Trading Scheme (EU ETS) is the first and biggest international scheme for the trading of greenhouse gas emission allowances, while it is considered by the European Commission as the cornerstone of Europe’s “green” policies for reducing greenhouse gas emissions from industry in a cost-effective way. The present thesis focuses on two specific features of the EU ETS: auctioning and trading of emission allowances. It is thus a study of both the primary and secondary markets created by the EU ETS. The more specific scope of the thesis was on one hand to collect information, analyze and assess the auctions held in the different phases of EU ETS from 2005 onwards as a means of allowance allocation in the primary market and on the other hand to review the various emission allowances products traded in the European carbon exchanges and the monitoring rules governing the carbon market. In particular, the auctions held during the first two phases of EU ETS and the early auctions of phase III emission allowances during 2012 are presented in detail and they are assessed in terms of the extend of the implementation of the process, auctioning design, and auction results. Additionally, in order to draw conclusions regarding the statistical relationships between the primary market and the secondary market of emission allowances this thesis uses the following statistical tools: correlation, covariance, mean equality test, and variance equality test. The selected variables are divided in pairs and each pair is examined separately, so as to investigate the dependences between the variables. Focus was also placed on the auctioning system due to be implemented with the next months, in the context of the third trading period starting in 2013 and the adjustments yet to be done by the European Commission are also presented. A detailed analysis of all GHG emissions trading products as offered in both primary and secondary markets is further provided. This analysis is divided into two parts. In the first part, all features of the different emission products, including price and volume statistics and contract types are examined , with special reference to European exchange platforms in place. In the second part, the relationships between the different products and between the [4] different contracts of the same product are examined by using the aforementioned statistical tools. It is especially investigated the degree of interdependence between the four main products traded in the European carbon exchanges (EUAs, CERs, ERUs, and EUAAs) and the price interrelationship of the different contracts (spot, futures) offered for each product. Regulation and market oversight remains a critical parameter in ensuring proper market functioning and preventing market abuse. An in depth investigation of the European Commission monitoring rules either already in place or in a proposal status to prohibit market abuse, including the recent REMIT regulation for monitoring the wholesale energy markets and its potential interdependences with EU ETS, is also included in the last part of this thesis. The work has lead to some basic conclusions:  The primary emission allowances market seems to be in interdependence with the secondary carbon market. There are clear indications that the level of the secondary market price determines the clearing price and thus a well-functioning secondary market has a positive effect on the primary market.  Both the primary and the secondary markets have obtained the characteristics of any other commodity market across the globe. The evolution of prices according to the market participants’ expectations, the increasing transacted volumes, the open access to all interested parties, the different contract types, and the growing volume and value are strong indications that the carbon market as a whole and especially the European secondary market have obtained the features of the markets for other types of commodities.  The smooth transition from phase II to phase III of the EU ETS is considered of paramount importance by the Commission. The Commission tries to obtain this orderly transition in two ways: Primarily through the establishment of a reliable scheme that ensures efficient auctioning as from 2013 and thereinafter through the implementation of early auctions. The Commission estimates that the former facilitates the transition for the primary market, while the latter corresponds to the secondary market participants’ needs.  In an expanding carbon market the Commission tries to obtain a constantly evolving legal framework in order to ensure the integrity of the market and secure fair and efficient trading conditions.