Print Email Facebook Twitter The market (in-)stability reserve for EU carbon emission trading: Why it might fail and how to improve it Title The market (in-)stability reserve for EU carbon emission trading: Why it might fail and how to improve it Author Richstein, J.C. Chappin, E.J.L. De Vries, L.J. Faculty Technology, Policy and Management Department Engineering, Systems and Services Date 2015-06-30 Abstract The EU parliament has accepted a proposal of the EU commission on the backloading of EU emission allowances (EUA), where the auctioning of EUAs is postponed to future time periods. The EU commission has also proposed a market stability reserve (MSR), which is a quantity-based stabilisation policy that is aimed at controlling the volume of EUAs in circulation. Using an agent-based electricity market simulation with endogenous investment and a CO2 market (including banking), we analyse the backloading reform and the proposed MSR. We find backloading to only have a short-term impact of CO2 prices; regardless, there is a significant risk of high CO2 prices and volatility in the EU ETS. Our simulations indicate that the triggers of the proposed MSR appear to be set too low for the hedging need of power producers, effectively leading to a stricter cap in its initial 10–15 years of operation. While the current proposal may be improved by choosing different triggers, a reserve that is based on volume triggers is likely to increase price volatility, contrary to its purpose. Additional problems are the two-year delay in the response time and the abruptness of the response function, combined with the difficulty of estimating future hedging behaviour. Subject EU ETScarbon marketmarket stability reservebackloadingagent-based modellingelectricity market To reference this document use: http://resolver.tudelft.nl/uuid:16cc90b6-e373-4d3d-ac6d-e006d1c16288 Publisher Elsevier ISSN 0957-1787 Source https://doi.org/10.1016/j.jup.2015.05.002 Source Utilities Policy, 35, 2015 Part of collection Institutional Repository Document type journal article Rights © 2015 The AuthorsThis is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/) Files PDF Richstein_2015.pdf 1.43 MB Close viewer /islandora/object/uuid:16cc90b6-e373-4d3d-ac6d-e006d1c16288/datastream/OBJ/view