The EU Emission Trading Scheme (EU ETS) is a key instrument in European climate policy. Evidence from the first trading period
(2005-2007) and the first year of the Kyoto period 2008 dampened, however, ex-ante enthusiasm: because of substantial over-allocation
of emissions allowances in the first trading period the overall emissions cap was not stringent which caused a sharp drop
in carbon prices. In 2008 a more stringent cap but still high price volatility was observed. Based on experience from the
first years of the EU ETS the design of the EU ETS will be changed for the post-Kyoto period (2013-2020) including an EU-wide
cap and the use of auctioning as the main allocation principle. So far, no measures to control price volatility are envisaged.
This issue however gains in importance in the political and economic debate as prices are an important signal for investment
decisions. More or less stable price signals are essential for the environmental effectiveness of an emissions trading scheme.
As evidence shows, this is not necessarily guaranteed by the market process. Based on an analysis of the first trading years
the paper provides an argumentation for the implementation of price stabilisation measures in the post-Kyoto period.
Keywords:climate policy, emissions trading, EU Emission Trading Scheme
Forschungsbereich:Umwelt, Landwirtschaft und Energie