Use of Kyoto credits by European industrial installations: from an efficient market to a burst bubble

No. 43 • January 2014 USE OF KYOTO CREDITS BY EUROPEAN INDUSTRIAL INSTALLATIONS: FROM AN EFFICIENT MARKET TO A BURST BUBBLE 1 2 3 Nicolas Stephan , Valentin Bellassen and Emilie Alberola European industrial installations surrendered over 1 billion Kyoto credits (675 million CERs and 383 million ERUs) in Phase II (2008-2012) of the European Union Emission Trading Scheme (EU ETS). Kyoto credits have always been less expensive than EUAs, initially as a result of asymmetric information, and then due to the fact that credit surrender was capped at around 1,650 MtCO e at the European level. 2 Lower credit prices enabled installations to reduce their compliance costs. The savings achieved by installations subject to the EU ETS are estimated between €4 billion and €20 billion over the period between 2008 and 2012. The use of CERs and ERUs within the EU ETS grew exponentially. It was also effective from an economic standpoint in several ways: 1. a vast majority of the installations – 70%, which represent 90% of the emissions covered – made use of the option to return credits; 2. the use of credits was primarily limited by the supply: once delivered, credits made their way from the producer's account to the end-customer's account very quickly, on average in seven months; 3.