Browsing by Author "Marjamaa, Elina"

The objective of this thesis is to estimate future emission allowance demand and supply and their balance in the European Union Emissions Trading Scheme during 2008-2020. The demand for European Union Emission Allowances, EUAs, originates from total emissions emitted by companies. An emission forecasting model by Aatola, Ollikka and Ollikainen is used to estimate the development of emissions in the future. Two different economic growth scenarios are used to study how different expectations of future economic growth, electricity production, fossil fuel use and industry´s production growth affect total future emissions and thus the demand of emission allowances and the balance of emission allowance demand and supply. After estimating development of future emissions, some conclusions about carbon market oversupply are made. I also study the effect of certain political factors on the oversupply. For example, I analyze how the European Commission´s planned set aside of 1,4 billion or alternatively 700 million emission allowances and the energy efficiency directive reform would affect the carbon market. The main result of this study is that the European Union carbon market is greatly oversupplied. If the impacts of additionally allocated allowances, emission reduction units, early third trading period auctions, NER300 auctions and the energy efficiency directive reform on allowance supply are taken into account, the first scenario, based on expected economic growth, estimates that the third emissions trading period is oversupplied by 2684,9 million emission allowances. The second scenario, based on recessive economic growth, estimates that the third emissions trading period is oversupplied by 2957,8 million emission allowances. These results show that the European Commission´s possible set aside should be substantial in order to have a significant effect on the carbon market.