Although the ‘over-allocation’ of allowances in EU-ETS has been noted as a
major cause of carbon price crash in phase I, few studies have analyzed
quantitatively the issue of over-allocation in the formation of carbon prices. In
this study, we employ new variables such as over-allocation and intra-phase
borrowing in our regression model along with other price determinants. Based
on the literature, the amount of over-allocation was calculated by comparing
the cap to Business-as-Usual emissions. The over-allocation, stock price
index, clean dark/spark spread, the interaction term of stock price index and
clean dark/spark spread, oil price, and extreme weathers are found to be
statistically significant.