CARBON MARKETS REGULATION:THE CASE FOR A CO2 CENTRAL BANK

Christian de PerthuisParis-Dauphine University, Climate Economics Chair

Paris, September 9th, 2011

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La régulation des marchés du carbone : principales questions

Les dysfonctionnements observés et la démarche « Market oversight enhancement”. Trois questions :– Sécurité des infrastructures– Statut juridique des quotas de CO2– Articulation avec régulations existantes

L’enjeu du traitement de l’information La « banque centrale du carbone »

– Objectifs de long terme et cibles intermédiaires : quel partage des rôles avec l’autorité publique ?

– Régulation des marchés : faut-il des prix cibles ?– Volet institutionnel : l’organisme indépendant organisateur des

enchère, embryon de la BCE ?

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Main failings on the European carbon market

2008 2009 2010 2011 2012 2013

End 2008 Start of VAT frauds detected in higher

EUAs traded volume

Summer 2009 VAT frauds

estimated at €5 billion

May 2010 European Commission amends the method of

levying VAT

March 2010 Recycling of CER from Hungarian

registry

April 2010 European Commission

amends registries regulation concerning the recycling of CER

January 2011 Theft of EUAs amounted to €50

million at least European commission closes

registries and suspends transactions on EUAs

April 2011 European Commission

authorizes the reopening of all

national registries

2013 Start of the third

trading period

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The task of a CO2 central bank compared to a standard central

bank Monetary Market Carbon Market

Final objective Long-term monetary stability Short- and long-term emissions reduction at lowest cost

Market oversight Integrity and liquidity of transactions Integrity and liquidity of transactions

Price instrument Interest rates Carbon prices

Quantitative regulation

Primary market Supply of central money (M0) Allowances auctioning

Secondary market - Open Market (sell and buy monetary assets) - Exchange rate

- Sell and buy carbon assets

- Links with other markets (offsets, other cap and trades, etc.)

Lender of last resort Refinance banks in the event of liquidity crisis

Additional allowances supply used as a “safety valve”

Reporting to public authorities (European Council, European Parliament and Commission)

- Annual and quarterly reports on the monetary and economic situation

- Public hearings in the EU Parliament

- Annual report on the carbon price and on the GHC emissions reduction long-term path

- Quarterly reports on EU-ETS and carbon price

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Supply and demand equilibrium

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Friday Lunch Meeting

Thank you for your attention!

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