Banking and Borrowing in the EU ETS: A Review of Economic Modelling, Current Provisions and Prospects for Future Design

This article deals with the issue of banking and borrowing in the context of the European Union Emissions Trading Scheme (EU ETS) by attempting to provide a policy-oriented unifying theoretical framework. After describing the main features of the EU ETS, the core part of the article consists of variations of an inter-temporal continuous time optimization model. Additional elements include flexibility measures currently discussed and proposed in other emissions trading systems (USA, Australia), which include the use of safety valves, minimum price auctioning or offsets from domestic or international projects.