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MSR Under Exogenous Shock: The Case of COVID-19 Pandemic

Authors :
Valeriya Azarova
Mathias Mier
Source :
SSRN Electronic Journal.
Publication Year :
2020
Publisher :
Elsevier BV, 2020.

Abstract

The EU implemented the Market Stability Reserve (MSR) in response to the 2008 financial crisis to deal with short-term impacts of future shocks, such as the Covid-19 pandemic. We link a model that intertemporally optimizes the handling of banked allowances every five years with one that simulates the annual working of the EU ETS including the MSR with its potential cancelling. Neglecting the pandemic, 2.16 billion allowances are cancelled. Accounting for the pandemic, 0.28 billion additional allowances are cancelled if the European economy fully recovers by 2021, which even overcompensates the 2020 drop in CO2 emissions. Additional cancelling increases when the pandemic lasts longer, meaning that the MSR even outperforms its initial purpose.

Details

ISSN :
15565068
Database :
OpenAIRE
Journal :
SSRN Electronic Journal
Accession number :
edsair.doi...........fae7f2aa6281c3221ceec68a0d01ebc7
Full Text :
https://doi.org/10.2139/ssrn.3724330