December 19, 2010

The Economic Geography of European Carbon Market Trading

by Eric Knight

- The European Union Emissions Trading Scheme (EU ETS) is the world’s first regional carbon trading market. This article is a quantitative attempt to examine the temporal and spatial geography of European carbon trading. We show that carbon markets are especially sensitive to two factors: staging across time (Phase I versus II of the EU ETS) and across space (energy market structures in Europe). Carbon markets serve as a vehicle to better understand the economic geography of financial markets. Building on the theoretical vocabulary of the geography of finance, the article suggests that certain national factors (market structure) and institutional factors (regulatory phases) better explain how carbon markets operate than company level differences. These findings indicate that geographers have a key role to play in highlighting the local ramifications of carbon markets if and when the world moves towards its ambition for a global carbon market.

Knight, E. (2010). "The Economic Geography of European Carbon Market Trading." CCEP working paper 5.10, Oct 2010.