In the decade following the financial crisis and the ensuing economic downturn, the EU's flagship Emissions Trading System (ETS) suffered from low prices and low abatement efforts because more allowances were available than firms needed to cover their emissions.
This led firms to save up a large stockpile of unused allowances. In an attempt to raise and stabilise prices, the EU established the so-called Market Stability Reserve (MSR).
It conditions the availability of allowances ...
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Dr Maximilian Willner is a research associate at the University of Hamburg chair for environmental economics. Dr Grischa Perino is a professor of economics at the University of Hamburg.