Abstract
This paper analyses the European Emission Trading System (ETS) from a network perspective. It is shown that the network exhibits a strong core-periphery structure also reflected in the network formation process. Due to a lack of centralized market places, operators of installations which fall under the EU ETS regulations have to resort to local networks or financial intermediaries if they want to participate in the market. This undermines the central idea of the ETS to exploit marginal abatement costs.
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Notes
- 1.
Council Decision of 15 December 1993 [3].
- 2.
Noteworthy exceptions are the United States which signed but never ratified the KP and finally withdrew in 2001 and Canada which quit the treaty in 2011.
- 3.
Carbon dioxide, methane, nitrous oxide, sulphur hexafluoride, hydrofluorocarbons and perfluorocarbons.
- 4.
This is the marginal cost of reducing green house gas emissions by one unit.
- 5.
One emission allowance unit typically corresponds to one metric ton of \(\textit{CO}_2\)-equivalent.
- 6.
The majority of currently ongoing Joint Implementation projects are situated in transition economies with Annex 1 obligations like the Russian Federation and Ukraine [5].
- 7.
The directive was later amended by Directive 2004/101/EC, Directive 2008/101/EC, Regulation (EC) No 219/2009 and Directive 2009/29/EC.
- 8.
The in- and out-degrees of each agent: this means the active and passive connectedness of agents.
- 9.
Be the k-core of graph a maximal subgraph in which each vertex has at least degree k. The cliquishness or coreness of a vertex is then k if it belongs to the k-core but not to the (k+1)-core. [12].
- 10.
Eigenvector centrality: the first eigenvector of the adjacency matrix giving the centralities for each vertex. It can be understood as a reciprocal process in which the centrality of a vertex depends proportionally on the centralities of other vertices to which it is connected.
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The authors acknowledge the support of the EU FP7 FET project SIMPOL.
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Karpf, A., Mandel, A., Battiston, S. (2016). A Network-Based Analysis of the European Emission Market. In: Battiston, S., De Pellegrini, F., Caldarelli, G., Merelli, E. (eds) Proceedings of ECCS 2014. Springer Proceedings in Complexity. Springer, Cham. https://doi.org/10.1007/978-3-319-29228-1_24
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