Reflections on the Mechanisms to Protect Against Formation of Price Bubble in the EU ETS Market

Abstract

The rapid increases of European Union Allowance (EUA) prices and very high market volatility, resulting mainly from the growing role of speculative entities, can contribute to forming a price bubble. This may cause the market instability and could have a implications on planning future reduction investments by European Union Emissions Trading Scheme (EU ETS) participants. That is why they need some kind of ‘safety valve’, an effective EU ETS instrument, which can be triggered when the situation requires it.

Keywords

• eu ets
• eua price
• msr
• price bubble
• market manipulation
• speculators
• price volatility
• cap tightening