Modelling CO2 permit prices
This doctoral thesis provides a theoretical analysis of the CO2 permit price dynamics in an ordinary cap-and-trade system and hybrid schemes by using stochastic equilibrium models and reduced-form models. We investigate the price sensitivity towards changes in the expectation of how long the remaining permits will suffice within an ordinary cap-and-trade system. We discuss how hybrid schemes such as the price floor, price collar, allowance reserve, options offered by the regulator and offset relaxation are related to an ordinary cap-and-trade system and analyze whether hybrid schemes are able to guarantee price bounds and reduce the price volatility. Furthermore, the thesis gives an overview of the regulations of the Kyoto Protocol and the EU ETS.