LAUSR

Abstract The future of the Carbon Market Approach under the United Nations Framework Convention on Climate Change (UNFCCC) is uncertain. However, further development of Carbon Markets is expected. This paper estimates the average carbon price of the carbon emission permits (COP-approved units) acquired by the Spanish government and also a more realistic figure for the average carbon cost of the aforesaid emission permits. This is very useful for evaluating and comparing different carbon prices and markets. In addition, the paper contributes to the existing literature by providing a deeper understanding of the flow of emission permits between the European Union Emission Trading Scheme (EU ETS) and the Emission Trading Scheme (ETS) under the Kyoto Protocol. The main conclusions are that the estimated carbon price and cost are both lower than other reported prices and costs. This may go some way towards explaining why the government preferred to use the Flexibility Mechanisms and acquire an especially large number of COP-approved units (mainly Assigned Amount Units (AAUs)) through bilateral transactions with other Annex B countries, instead of launching actual greenhouse gas (GHG) abatement projects in the country. Moreover, more transparency is needed in regard to bilateral transactions of AAUs between the Spanish government and other Annex B seller countries.