TH`ESE Docteur de l'Université Paris-Dauphine Morgan HERVÉ ...

alargelyover-allocatedmarket. Theover-supplyofallowancescomparedto
demand triggered a strong price correction (phase I price decreased by 64%
between April 24th and May 2nd). On May 15th, the official release by the
EC of aggregated emissions for the year 2005 did little to dissipate doubts
over too large an emissions cap for Phase I. In April 2007 and 2008, the process
was smoother and more streamlined to prevent similar major impact
on market prices. The fact that market participants had no expectations of
scenario reversal during phase I also helped.
As regards the use of Kyoto offsets in phase I of the European scheme,
the European so-called ”linking directive” (which was adopted in 2004) permits
the use of CDM offsets for compliance purpose. The use in phase I is
theoretically unrestricted (i.e. compliance could be achieved by surrendering
solely Kyoto offsets). Nevertheless, this was prevented by (1) the long
wait to have the ITL (Kyoto registry) operational (which only happened in
late 2007), (2) the practical constraint to have the CITL (EU ETS registry)
connected to the ITL. Initially scheduled for April 2007 (Alberola and de
Dominicis, 2006 [5]), the connection was delayed to October 2007 and then
to December 2007 2 . Afterwards it was obvious that no CERs would be
available for use in the EU ETS during phase I.
Banking opportunities for unused allowances from phase I to II, initially
very limited to France and Poland only, were rendered unattractive by EC
decisions on several NAPs for phase II in October-November 2006. In short,
any allowance carried forward to phase II would decrease the member state’s
corresponding NAP II emissions cap. This triggered a price disconnect between
phase I EUA price and that of phase II. The idea behind this EC
move was to prevent that phase I excess allowances would be carried forward
towards phase II which would have undermined the constraint of the
scheme.
Figure 1.1 depicts the evolution of the price of the Phase I EUA over its
lifetime. We see the price shock that occurred during the first ”true-up”
event and the price disconnect that ensued. Nevertheless, apart from those
major price shocks, the price of the EUA responded to market fundamentals,
that is information regarding the supply of allowances (NAPs) and
demand for emissions (industrial activity, the relative price of gas and coal,
temperature and precipitation data, etc.).
2 According to the UNFCCC secretariat (reported in Tendances Carbone, 2007, [6]).
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