18
Winners and Losers of EU Emissions Trading during its first trading period (2005 - 2007) 4th IAEE Asian Conference 19-21 September 2014, Beijing Johanna Cludius, CEEM, UNSW

Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

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Page 1: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Winners and Losers of EU Emissions Trading

during its first trading period (2005 - 2007)

4th IAEE Asian Conference

19-21 September 2014, Beijing

Johanna Cludius, CEEM, UNSW

Page 2: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Ways to become a ‘winner’

2

Sell overallocation

Engage in EUA-CER swaps

Speculate on carbon market

Offer (costly) brokerage and other services to

liable firms

Pass-through carbon cost to consumers over and

above actual costs incurred

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

Page 3: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Data

3

Datasets available on the EU Transaction Log (EUTL) / CITL http://ec.europa.eu/environment/ets/

Operator Holding Accounts

Person Holding Accounts

Transfer Dataset

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

-

500

1,000

1,500

2,000

2,500

Ja

n 2

00

5

Fe

b 2

00

5

Ma

r 2

00

5

Apr

20

05

Ma

y 2

00

5

Ju

n 2

00

5

Ju

l 20

05

Aug

20

05

Sep

20

05

Oct 2

005

No

v 2

00

5

De

c 2

00

5

Ja

n 2

00

6

Fe

b 2

00

6

Ma

r 2

00

6

Apr

20

06

Ma

y 2

00

6

Ju

n 2

00

6

Ju

l 20

06

Aug

20

06

Sep

20

06

Oct 2

006

No

v 2

00

6

De

c 2

00

6

Ja

n 2

00

7

Fe

b 2

00

7

Ma

r 2

00

7

Apr

20

07

Ma

y 2

00

7

Ju

n 2

00

7

Ju

l 20

07

Aug

20

07

Sep

20

07

Oct 2

007

No

v 2

00

7

De

c 2

00

7

Ja

n 2

00

8

Fe

b 2

00

8

Ma

r 2

00

8

Apr

20

08

Ma

y 2

00

8

Mill

ion

EU

A

Allocation

Surrender

Market Transfers

Source: EUTL

Page 4: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Enhancing the dataset

4

Linking datasets

Aggregation from installation to parent company level (Jaraite et

al. 2013) http://fsr.eui.eu/CPRU/EUTLTransactionData.aspx

Defining transfer categories

Admin vs. market transfers (cf. Martino and Trotignon 2013)

Intra- vs. inter-company transfers

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

Source: EUTL

Market

Volume (Mt)

inter-

company

intra-

company

inter-

company

1,750 1,603 6,224 9,576 1,750 6,051 9,403

Total

Period I - Transferred

Market

Admin AdminTotal

Period I - Acquired

Page 5: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Adding prices

5

EUTL dataset contains no information on

Time of trade (only physical delivery)

Price employed

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

-5

0

5

10

15

20

25

30

35

Jan 2

005

Feb 2

005

Mar

2005

Apr

2005

May 2

005

Jun 2

005

Jul 2005

Aug 2

005

Sep 2

005

Oct 2005

Nov 2

005

Dec 2

005

Jan 2

006

Feb 2

006

Mar

2006

Apr

2006

May 2

006

Jun 2

006

Jul 2006

Aug 2

006

Sep 2

006

Oct 2006

Nov 2

006

Dec 2

006

Jan 2

007

Feb 2

007

Mar

2007

Apr

2007

May 2

007

Jun 2

007

Jul 2007

Aug 2

007

Sep 2

007

Oct 2007

Nov 2

007

Dec 2

007

Jan 2

008

Feb 2

008

Mar

2008

Apr

2008

€/E

UA

Spot

Average price 2005

Average price 2006

Average price 2007

Average price 2005-2007

Source: Point Carbon

Page 6: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Spot, forwards and futures

6

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

Source: EUTL, Point Carbon

0

10

20

30

40

50

60

70

80

90

100

Ja

n 2

00

5

Feb 2

005

Ma

r 2

00

5

Ap

r 2

00

5

Ma

y 2

00

5

Jun 2

005

Ju

l 2

00

5

Au

g 2

00

5

Se

p 2

00

5

Oct 2

00

5

No

v 2

00

5

De

c 2

00

5

Ja

n 2

00

6

Feb

200

6

Ma

r 2

00

6

Ap

r 2

00

6

Ma

y 2

00

6

Ju

n 2

00

6

Ju

l 2

00

6

Au

g 2

00

6

Se

p 2

00

6

Oct 2

00

6

No

v 2

00

6

De

c 2

00

6

Ja

n 2

00

7

Feb

200

7

Ma

r 2

00

7

Ap

r 2

00

7

Ma

y 2

00

7

Ju

n 2

00

7

Ju

l 2

00

7

Au

g 2

00

7

Se

p 2

00

7

Oct 2

00

7

No

v 2

00

7

De

c 2

00

7

Ja

n 2

00

8

Feb

200

8

Ma

r 2

00

8

Ap

r 2

00

8

Mill

ion

EU

A

EUTL Period I market inter- and intra-company transfers

EUTL Period I market L3 inter-company transfers

Point Carbon historical OTC

Point Carbon historical exchange

Shifting between accounts

after allocation and before

compliance date

Delivery of forwards

and futures

Page 7: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Most active entities on clearing days

7

Source: EUTL

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

The

company's

total trading

volume in

Period I

Total trading

volume on

forward /

futures days

The

company's

total trading

volume in

Period I

Total trading

volume on

forward /

futures days

LCH Clearnet 204 91% 17% ELECTRICITE DE FRANCE 40 67% 3%

NASDAQ OMX (Nordpool) 9 11% 1% RWE AG 28 42% 2%

CDC 6 5% 1% E.ON SE 25 35% 2%

SSE PLC 22 60% 2%

UBS AG* 119 82% 10% ENEL SPA 18 27% 2%

Calyon Financial 71 89% 6% ENBW AG 18 57% 1%

BARCLAYS PLC* 68 43% 6% GDF 16 19% 1%

AGEAS SA/NV* 34 38% 3% ESSENT N.V. 16 59% 1%

BNP PARIBAS* 33 72% 3% ALLIANDER N.V. 15 41% 1%

MORGAN STANLEY* 25 58% 2% IBERDROLA SA 14 67% 1%

GOLDMAN SACHS GROUP* 25 78% 2% CENTRICA PLC 13 35% 1%

SOCIETE GENERALE 18 48% 1% DRAX GROUP PLC 12 56% 1%

ROYAL BANK OF SCOTLAND 13 49% 1% CEZ A.S. 12 67% 1%

COMMERZBANK AG 13 37% 1% VATTENFALL AB 12 35% 1%

SAL. OPPENHEIM JR. & CIE. * 9 53% 1% Deeside Power Limited   8 25% 1%

NUCLEAR LIABILITIES FUND 9 74% 1% VEOLIA ENVIRONNEMENT 7 33% 1%

PCE Investors 8 67% 1% Sempra Energy Europe Ltd. 7 44% 1%

MERRILL LYNCH & CO.* 8 34% 1%

DEUTSCHE BANK AG* 6 33% 1% ROYAL DUTCH SHELL 24 41% 2%

BP PLC 18 41% 1%

SAINT GOBAIN SA 19 39% 2% BHP BILLITON LIMITED 9 76% 1%

RHODIA SA 10 43% 1% TOTAL S.A. 8 56% 1%

Representing a share of Representing a share of

Volume on

forward /

futures

days (Mt)

Company Company

Volume on

forward /

futures days

(Mt)

Clearing house, exchange

Financial actors

Energy

Utilitlies

Industry

Page 8: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Biggest winners and losers

8

Source: EUTL

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

-80

-60

-40

-20

0

20

40

60

-800

-600

-400

-200

0

200

400

600E

NE

L S

PA

RW

E A

G

E.O

N S

E

GA

S N

AT

UR

AL S

DG

, S

.A.

DR

AX

GR

OU

P P

LC

AL

LIA

ND

ER

N.V

.

EL

EC

TR

ICIT

E D

E F

RA

NC

E

SU

EZ

ED

P -

EN

ER

GIA

S D

E P

OR

TU

GA

L,

S.A

.

CO

MP

AG

NIE

DE

SA

INT

GO

BA

IN S

A

VE

OL

IA E

NV

IRO

NN

EM

EN

T

Ele

ktr

árn

y O

pa

tovic

e,

a.s

.

SS

AB

AB

UN

ION

FE

NO

SA

SA

SC

VE

RM

OE

GE

NS

VE

RW

AL

TU

NG

GM

BH

CE

Z A

.S.

EE

ST

I E

NE

RG

IA A

S

AR

CE

LO

R S

.A.

CO

RU

S G

RO

UP

LIM

ITE

D

MIT

TA

L S

TE

EL C

OM

PA

NY

N.V

.

Ove

rallo

ca

tio

n (

Mt)

Ga

in / L

oss (

M€

)

Gain / Loss (M€)

Overallocation (Mt)

Page 9: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Sensitvity to price assumptions

9

Source: EUTL

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

-800

-600

-400

-200

0

200

400

600E

NE

L S

PA

*

RW

E A

G*

E.O

N S

E*

GA

S N

AT

UR

AL

SD

G,

S.A

.

DR

AX

GR

OU

P P

LC

*

ALL

IAN

DE

R N

.V.*

ELE

CT

RIC

ITE

DE

FR

AN

CE

*

SU

EZ

ED

P -

EN

ER

GIA

S D

E P

OR

TU

GA

L,

S.A

.

CO

MP

AG

NIE

DE

SA

INT

GO

BA

INS

A*

VE

OL

IA E

NV

IRO

NN

EM

EN

T*

Ele

ktr

árn

y O

pa

tovic

e,

a.s

.

SS

AB

AB

UN

ION

FE

NO

SA

SA

SC

VE

RM

OE

GE

NS

VE

RW

AL

TU

NG

GM

BH

CE

Z A

.S.

EE

ST

I E

NE

RG

IA A

S

AR

CE

LO

R S

.A.

CO

RU

S G

RO

UP

LIM

ITE

D

MIT

TA

L S

TE

EL C

OM

PA

NY

N.V

.

Ga

in / L

oss (

M€

)

Tier 1: Spot prices (M€)

Tier 2a: Average yearly prices (M€)

Tier 2b: Forward / futures prices (M€)

Tier 3: Average period prices (M€)

Page 10: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Regression analysis

10 Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

-800

-600

-400

-200

0

200

400

600

-80 -60 -40 -20 0 20 40 60

Gain / loss (M€)

Overallocation (Mt)

Tier 1: Spot prices (M€)

Tier 2a: Average yearly prices (M€)

Tier 2b: Forward / futures prices (M€)

Tier 3: Average period prices (M€)

Two-step model (cf. Zaklan 2013)

Number of accounts used as exclusion restriction

Page 11: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Summary statistics

11

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

Sources: EUTL, Point Carbon

Obs. Mean Min P5 P10 P25 Median P75 P90 P95 Max

Trade 4,559 0.65

Number of accounts 4,559 2 1 1 1 1 1 2 4 7 216

Has PHA 4,559 0.04

Short 4,559 0.26

Position (Mt) 4,559 0.03 -60.96 -0.03 -0.01 -0.0002 0.01 0.03 0.15 0.33 41.90

Small 4,559 0.58

Medium 4,559 0.24

Large 4,559 0.13

Very large 4,559 0.05

Electricity 4,559 0.10

Gains

Tier 1: Spot prices (M€) 2,955 0.25 -512.89 -0.20 -0.05 -0.0005 0.02 0.33 1.61 3.86 231.44

Tier 2a: Avg. yearly prices (M€) 2,955 0.19 -518.28 -0.29 -0.08 -0.001 0.03 0.31 1.48 3.66 224.35

Tier 2b: Forw. / fut. prices (M€) 2,955 0.14 -705.71 -0.23 -0.06 -0.0005 0.02 0.36 1.81 4.53 240.43

Tier 3: Avg. period prices (M€) 2,955 0.16 -589.41 -0.51 -0.15 -0.03 0.05 0.34 1.60 4.23 387.63

First 2,955 0.40

Second 2,955 0.36

Third 2,955 0.24

Number of trades 2,955 13 1 1 1 1 2 5 13 27 2,986

Via intermediary 2,955 0.60

Page 12: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Regression results

12

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

Tier 1: Spot pricesTier 2a: Average

yearly prices

Tier 2b: Forward /

futures prices

Tier 3: Average period

prices

Short 0.30 0.41*** 0.51** 0.53***

(0.21) (0.10) (0.25) (0.13)

Position -0.08 0.19 0.33 7.62***

(0.38) (0.26) (0.36) (1.01)

PosXFirst 8.05*** 8.46*** 7.32*** 0.45

(1.41) (0.75) (1.38) (1.20)

PosXSecond 2.55*** 3.15*** 2.52*** -0.72

(0.62) (0.48) (0.63) (1.22)

First 0.23*** 0.11* 0.01 -0.06

(0.09) (0.06) (0.08) (0.06)

Second 0.05 0.06** -0.02 -0.004

(0.03) (0.02) (0.03) (0.03)

Medium 0.21 0.21** 0.47** 0.19

(0.17) (0.09) (0.22) (0.12)

Large 0.94** 0.88*** 0.74* 0.57**

(0.39) (0.22) (0.43) (0.23)

Electricity 0.37** 0.34*** -0.01 0.13*

(0.15) (0.12) (0.26) (0.07)

Number trades -0.02*** -0.02*** 0.03*** -0.003

(0.005) (0.003) (0.01) (0.005)

Has PHA -0.95*** -0.68** -0.53 -0.29

(0.37) (0.32) (0.60) (0.32)

Via intermediary 0.06 0.05 -0.01 0.06**

(0.05) (0.04) (0.05) (0.03)

Constant -0.69 -0.80*** -1.16** -0.94***

(0.43) (0.19) (0.51) (0.25)

Country dummies X X X X

Page 13: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Regression results: Selection equation

13

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

Tier 1: Spot pricesTier 2a: Average

yearly prices

Tier 2b: Forward /

futures prices

Tier 3: Average period

prices

Number accounts 0.14*** 0.14*** 0.14*** 0.18***

(0.03) (0.03) (0.03) (0.05)

Short 0.87*** 0.82*** 0.83*** 0.82***

(0.10) (0.09) (0.10) (0.09)

Medium 0.31*** 0.30*** 0.30*** 0.29***

(0.05) (0.05) (0.05) (0.05)

Large 0.95*** 1.04*** 1.01*** 0.94***

(0.19) (0.14) (0.11) (0.13)

Electricity 0.11 0.13 0.14* 0.09

(0.09) (0.08) (0.08) (0.08)

Constant -0.09* -0.12 -0.12 -0.19**

(0.08) (0.08) (0.08) (0.09)

Country dummies X X X X

ρ 0.42 0.62** 0.59* 0.67***

(0.38) (0.18) (0.23) (0.14)

Observations

Uncensored (Total)

*** Significant at the 99% confidence level, ** at the 95% level, * at the 90% level

Selection equation

2751 (4343)

Sources: EUTL, Point Carbon

Note: Newey-West standard errors in parentheses

Page 14: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Estimates of windfall profits due to cost

pass-through

14

Electricity sector

€ 5.3 - € 7.7 billion annually for generators in Belgium, France, Germany and

the Netherlands at carbon prices of 20 €/tCO2; free allocation of 90 % (Sijm

et al. 2006)

€ 1.2 – 2.2 billion annually for each of the large four utilities in Germany at

carbon prices of 25 €/tCO2; free allocation of at least 90 % (Matthes 2008)

€ 19 billion annually for generators during 1st period (Keppler and Cruciani

2010)

Industry sector

€ 6.7 billion expected during third period (Martin et al. 2012)

€ 14 billion in 2005 - 2008 for refineries and iron and steel sector (Bruyn et al.

2010)

Less consensus (cf. Demailly and Quirion 2008; Ponssard and Walker 2008)

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

Page 15: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Policy implications

15

Significant wealth transfers during the first period of the EU ETS

Overallocation as important determinant for gains calculated from EUTL data

Larger companies more likely to trade (and make a gain) than small

companies

Biggest ‘losers’ on ETS market (electricity generators) likely to

have received windfall profits due to cost pass-through over and

above any costs incurred on the market for EUAs

Who were the ‘real losers’?

Majority of costs likely borne by households

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

Page 16: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

16

Low-income households most likely to be affected

Spend a large fraction of their income on energy

Firm profits most likely passed-through to higher income households

High level of free allocation means less revenue for the government with

which unwanted effects could be alleviated

Therefore, free allocation determines winners and losers within the

scheme, but also between scheme participants and households

Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

Outlook

2nd trading period

Majority of allowances still allocated for free

More mature market

3rd trading period

50 % free allocation

Electricity sector has to buy most allowances, but large amount of free

allocation to industry continues

Page 17: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

Thank you very much for your attention

Questions?

[email protected]

17 Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014

Page 18: Winners and Losers of EU Emissions Tradingceem.unsw.edu.au/.../jcludius_ETS_winners_losers.pdf · Winners and Losers of EU Emissions Trading during its first trading period (2005

19

Many of our publications are available at:

www.ceem.unsw.edu.au Johanna Cludius | 4th IAEE Asian Conference | 19-21 September 2014