The European Union emissions trading system market stability reserve: does it stabilize or destabilize the market?

Perino, Grischa, Willner, Maximilian, Quemin, Simon and Pahle, Michael (2022) The European Union emissions trading system market stability reserve: does it stabilize or destabilize the market? Review of Environmental Economics and Policy, 16 (2). 338 - 345. ISSN 1750-6816

Text (Perino-Willner-Quemin-Pahle-Final Policy Brief-final) - Accepted Version Repository staff only until 14 July 2024. Download (430kB) | Request a copy

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Abstract

The Market Stability Reserve (MSR) was introduced into the European Union Emissions Trading System to address a historical surplus of emission allowances and to improve the system’s resilience to major shocks through automatic adjustments to the supply of allowances. We summarize the main strengths and weaknesses of the MSR and identify when it stabilizes the market as intended, as well as when it is destabilizing. We argue that recently proposed design changes strengthen both its stabilizing and destabilizing effects. We conclude that a price-based supply adjustment mechanism would help to address the main shortcomings rooted in the banking-based approach of the current MSR design.

Item Type:	Article
Official URL:	https://www.journals.uchicago.edu/toc/reep/current
Additional Information:	© 2022 Association of Environmental and Resource Economists. All rights reserved.
Divisions:	Grantham Research Institute
Subjects:	G Geography. Anthropology. Recreation > GE Environmental Sciences
Date Deposited:	01 Aug 2022 13:42
Last Modified:	18 Apr 2024 01:15
URI:	http://eprints.lse.ac.uk/id/eprint/115742

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