The EU Emissions Trading System (EU ETS) is intended to be the flagship instrument of EU climate policy. Key aspects in this
cap-and-trade scheme are the target path as well as the market price for emission allowances which results from supply and
demand for these allowances. The recent pronounced price movements on the market for emission allowances raise the question
what causes these fluctuations and what could be the carbon price's role for stimulating and guiding the transformation of
the EU economy towards the 2030 emission target, which aims at a reduction of greenhouse gases of at least 55 percent compared
to 1990 levels. This research brief collects evidence about the market stringencies that result from demand and supply and
that prevailed in the third trading period between 2013 and 2020 and discusses potential drivers for the carbon price in the
current trading period up to 2030. We conclude that aligning the EU ETS with the "Fit for 55" framework, the expected radical
innovation efforts needed in particular for the hard-to-abate industries together with changing market behaviour due to hedging
and speculative trading will likely keep the EU ETS carbon price volatile.
Keywords:TP_GrueneTransformation
Research group:Climate, Environmental and Resource Economics