Policing carbon markets - Raphael Calel, Antoine Dechêzlepretre and Frank Venmans

The top panel shows the evolution of the price of EUAs in phases 1 and 2 of the EU ETS. [...] The fine wase40 per tonne in the first compliance phase of the EU ETS, was raised toe100 in the second phase, and has been rising at the rate of inflation in the third phase. [...] Second, in a number of cases the regulator appears 16 to have forgiven polluters for late surrender of allowances, retroactively modifying the official compliance status but failing to update the record in the public registry to reflect the late allowances. [...] 5 Beyond the fine The preceding section shows that, just as the canonical model predicts, the probability of non-compliance is associated with both the size of the penalty and the probability of enforcement. [...] If we regress the fine, the probability of enforcement, and their interaction, on the probability of non-compliance, we account for only 12% of the variation in the outcome.