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Journal Article

Financials threaten to undermine the functioning of emissions markets

Authors
/persons/resource/quemin

Quemin,  Simon
Potsdam Institute for Climate Impact Research;

/persons/resource/Michael.Pahle

Pahle,  Michael
Potsdam Institute for Climate Impact Research;

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Citation

Quemin, S., Pahle, M. (2023): Financials threaten to undermine the functioning of emissions markets. - Nature Climate Change, 13, 22-31.
https://doi.org/10.1038/s41558-022-01560-w


Cite as: https://publications.pik-potsdam.de/pubman/item/item_27791
Abstract
The participation of financial actors is a key design issue in all emissions allowance markets. Although financials perform several necessary market functions, excessive speculation may undermine market functioning. The potential for harm is gaining prominence as tighter emission limits increasingly attract speculators and investors into allowance markets worldwide. However, adequate warning systems and tools to appraise the beneficial and detrimental facets of financial trading are wanting. We develop preliminary elements of a diagnostic toolbox to assess the scale and impacts of speculation and apply it to the EU emissions trading system. This Perspective seeks to inform current policy debates and invites further research to establish speculation-monitoring systems for allowance markets.