bulls bears and market sheep abstract a deterministic excess demand model of stock market behavior is presented that generates stochastically fluctuating prices and randomly switching bear and bull markets

price determination in the eu ets market theory and econometric analysis with market fundamentals abstract we investigate the price determination of the european union emission allowance eua of the european union emissions trading scheme eu ets we postulate an uncertain permit price and risk averse firms which have the possibility to hedge in the forward market the firms produce final goods abate their emissions and trade permits in the permit market the dependence of the equilibrium permit price on exogenous variables is studied in a permit market model we test our theoretical findings with empirical data from 2005 to 2010 in the eu ets market we use daily forward prices of eua as our dependent variable we use several econometric models with multiple stationary time series to discover that there is a strong relationship between the fundamentals such as german electricity prices and gas and coal prices with the price of eua we find that the eua forward price depends on fundamentals especially on the price of electricity as well as on the gas coal difference in a statistically significant way

role of carbon swap trading and energy prices in price correlations and volatilities between carbon markets the present paper theoretically and empirically examines the role of carbon swap trading and energy prices in volatilities and price correlations between the eu and kyoto protocol emissions trading schemes a supply and demand based correlation model between eua and scer price returns is proposed in detail using inverse box cox type marginal abatement cost mac curves and simple emission reduction volume processes the model includes financial players eua scer swap transaction in boom periods of carbon prices using the logit model for eua and eua scer swap volume correlations and stronger energy price impacts on eua prices than scer prices using a mean reverting lognormal process for energy prices the empirical studies using eua and scer prices estimate the model parameters resulting in a positive eua volume impact on eua scer swap transactions and a positive energy price impact on eua prices it is shown that high eua scer price correlations during high eua price periods stemmed from eua scer swap transactions whereas high eua scer price correlations during the period of financial turmoil with low eua prices came from the drop in energy prices we also show that the leverage effects often observed in security markets exist in both the eua and scer markets according to the price volatility relation

detecting periodically collapsing bubbles a markov switching unit root test this paper addresses the problem of testing for the presence of a stochastic bubble in a time series in the case that the bubble is periodically collapsing so that the asset price keeps returning to the level implied by the market fundamentals as this is essentially a problem of identifying the collapsing periods from the expanding ones we propose using a generalization of the dickey fuller test procedure which makes use of the class of markov regime switching models the potential of the new methodology is illustrated via simulation and an empirical example is given copyright 1999 john wiley sons ltd

allowance price and distributional effects under a personal carbon trading scheme abstract personal carbon trading pct is a downstream cap and trade scheme to reduce carbon emissions from the household sector in comparison to an upstream carbon trading scheme pct is a progressive scheme in which the poorer consumers are mostly winners as their levels of emissions are generally lower this paper investigates the equilibrium price for allowances and distributional effects under a pct scheme first we propose an equilibrium model for pct from which we derive an equilibrium price for allowances second a consumer surplus analysis is conducted to examine the welfare changes caused by the pct scheme generally we find that the pct scheme is progressive and can provide a buffer between the energy and allowance price based on these results the implications are discussed and suggestions for a future study are provided

optimal production and carbon emission reduction level under cap and trade and low carbon subsidy policies abstract in recent years massive carbon emissions have caused serious global environmental damage such as a worsening greenhouse effect and thick haze to curb carbon emissions as well as maintain sustainable economic development governments promote the development of low carbon economy by issuing multiple policies among which the cap and trade policy ctp and low carbon subsidy policy lcsp are widely adopted moreover manufacturers are increasingly adopting carbon emission reduction technology to produce greener products considering related government policies and rising environmental awareness among consumers to give policy making insights to governments as well as production and carbon emission reduction decision making insights to manufacturers this paper investigates the impacts of ctp and lcsp on the production and carbon emission reduction level of a manufacturer and explores which policy is better for society the results show that the carbon emission reduction level increases as the carbon trading price increases whereas it is independent of the unit low carbon subsidy interestingly the carbon trading price does not always have a negative effect on the manufacturer s profit and the cap does not always produce a positive effect on the manufacturer s profit more importantly we find that lcsp is more beneficial to society when the environmental damage coefficient is less than a threshold but otherwise ctp is more beneficial

sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

market power in emission permit markets theory and evidence from the eu ets a well known result about market power in emission permit markets is that efficiency can be achieved by full free allocation to the dominant firm i show that this result breaks down when taking the interaction between input and output markets into account even if the dominant firm perceives market power in the permit market alone i then examine the empirical evidence for price manipulation by the ten largest electricity firms during phase i of the eu ets i find that some firms excess allowance holdings are consistent with strategic price manipulation and that they cannot be explained by price speculation or by precautionary purchases to insure against uncertain future emissions my results suggest that market power is likely to be an empirically relevant concern during the early years of emission permit markets

transactions in the european carbon market a bubble of compliance in a whirlpool of speculation the european union emissions trading scheme eu ets is supposed to help regulated installations to cover their co2 emissions by trading in allowances in practice the eu ets is mainly a financial market used for hedging and speculation this financial feature is regarded as a solution hedging and liquidity to a problem the price risk and volatility imposed on installations which the market has actually created itself this paper provides an estimation of the real underpinning of the scheme i e the needs of installations for allowances transfers to achieve compliance in the two first exchange periods this estimation which was singularly lacking in the literature shows that compliance transactions become more and more marginal as market activity grows and that they are drowned in a whirlpool of speculation this challenges the role of the carbon price whose financial and self referential evaluation can obviously not reveal installations marginal abatement costs the condition of cost effectiveness expected from carbon trading

production and transportation outsourcing decisions in the supply chain under single and multiple carbon policies abstract cap and trade and carbon tax are the two main policies to reduce carbon emissions different from the previous literature and practice this paper examines the production and transportation outsourcing problems of a two echelon supply chain under the cap and trade policy and joint cap and trade and carbon tax policy enterprise operations are divided into the order stage and transportation outsourcing decision stage in the order stage the retailer sets his order schedule for the manufacturing plant for fulfillment and in the transportation outsourcing decision stage the manufacturer decides the optimal freight volume based on energy consumption furthermore we construct a basic model without a carbon policy and two extended models with carbon policies and the optimal solutions of the models are solved numerical examples are provided and the three models are compared the results indicate that the extended model with carbon policies is more beneficial for emissions reduction and the effect of emissions reduction gradually becomes smooth as the carbon price increases the joint cap and trade and carbon tax policy is more effective for emissions reduction especially when the carbon price is lower these findings will be helpful to policy makers and managers

flexibility in the market for international carbon credits and price dynamics difference with european allowances the paris agreement establishes a mechanism to allow a party to benefit from greenhouse gases emissions reductions conducted in a host party to fulfil its nationally determined contribution in this context the objective of this paper is to improve the understanding of carbon offsets price dynamics in comparison with regular carbon markets allowances we combine a cointegration approach with risk premium considerations to compare the price dynamics of european union allowances eua and certified emission reductions cer in the second phase of the european carbon market by taking account of breaks identified in the series we find that while the eua and cer returns present comparable dynamics the long term relationships between the price of these two types of permits and their drivers differ significantly given the impact of energy prices positive for coal and negative for gas on the cer price we suggest the existence of a supply side effect for credits we find that the price elasticity of allowances with regard to the coal and gas prices is negative in time periods of low economic activity and positive in the rest of the time we explain the latter by the fact that the market is not tight and the former by the effect of the economic activity on the price of commodities and energy

what can we learn from the grand policy experiment lessons from so2 allowance trading stable url http links jstor org sici sici 0895 3309 28199822 2912 3a3 3c69 3awcwlft 3e2 0 co 3b2 tthe journal of economic perspectives is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgtue jun 26 16 25 17 2007

does weather or energy prices affect carbon prices abstract this study investigates the extent that key energy prices coal gas oil and electricity and weather explain carbon prices a key feature of the european union emissions trading scheme eu ets and whether this relationship changed since full auctioning came into effect in 2013 energy prices were found to impact the carbon price in phase iii of the eu ets however modelling based solely on energy prices explained only 12 of carbon price variation weather variables did not affect the carbon price except for unanticipated temperature changes these results indicate that it is not the level of temperature that impacts the carbon price rather it is unanticipated changes in temperature that matter given that climate change is associated with increased variance in temperature this result is consistent with climate change resulting in greater carbon price volatility and higher hedging costs

an equilibrium model of consumer energy choice using a personal carbon trading scheme based on allowance price abstract changes in consumer behavior due to a personal carbon trading pct scheme are theoretically attractive yet untested in practice in this paper simulations on the basis of an equilibrium model are used to examine the effects of carbon allowance prices on energy use choice under a particular pct scheme it is shown that the equilibrium price of allowances would emerge under the pct scheme considered here further analyses indicate that the quantity of energy consumption under pct is a nonlinear function of the allowance price with a sharp kink at the point of equilibrium when the allowance price is below the equilibrium price consumers would prefer higher carbon energy in contrast when the allowance price is above the equilibrium price consumers would choose lower carbon energy however when the allowance price equals the equilibrium value consumers would purchase lower carbon energy and higher carbon energy simultaneously furthermore it is shown that the initial allowance allocation could also affect energy use choice on the basis of these results one of the main implications is that the allowance price should exceed the breakeven price to stimulate consumers to switch to green energy and progressively live a low carbon lifestyle

an interim evaluation of sulfur dioxide emissions trading ide iv of the 1990 clean air act amendments established the first large scale long term environmental program to rely on tradable emissions permitscalled allowances in this program to control pollution this program was designed to cut acid rain by reducing sulfur dioxide so2 emissions from electric generating plants to about half their 1980 level beginning in 1995 it is of interest both as a response to an important environmental issue and as a landmark experiment in environmental policy this experiment comes at a particularly important time since emission trading is under serious consideration with strong u s backing for use to deal with global climate change by curbing emissions of carbon dioxide co2 the economic stakes in climate change surpass those in acid rain by several orders of magnitude intergovernmental panel on climate change 1996 this article summarizes the results to date of our ongoing empirical analysis of compliance costs and allowance market performance under the u s acid rain program

on the design of optimal grandfathering schemes for emission allowances to meet its commitment under the kyoto protocol the eu plans to implement an emissions trading system whith grandfathering of allowances besides having distributional impacts the choice of the grandfathering scheme may affect efficiency if firms anticipate how future allocations depend on upcoming decisions in this paper we determine central design rules for optimal grandfathering within a simple two period model we find that for small open trading systems where allowance prices are exogenous first best second period grandfathering schemes must not depend on firm specific decisions in the first period second best schemes correspond to a ramsey rule of optimal tax differentiation and are generally based on both previous emissions and output however ofr closed emissions trading systems i e endogeneous allowance prices firstand second best rules coincide and must not depend on previous output levels they consist of an assignment proportional to the emissions in the first period plus a term which does not depend on firm specific decisions in either of the two periods

an empirical analysis of energy cost pass through to co2 emission prices abstract we use the nonlinear autoregressive distributed lag nardl model to analyze the asymmetric and nonlinear pass through effects of changes in crude oil prices natural gas prices coal prices and electricity prices on the co 2 emission allowance prices we find that i the crude oil prices have a long run negative and asymmetric effect on the co 2 allowance prices ii the decreases in the coal prices have a stronger impact on the carbon prices in the short run than the increases iii the natural gas prices and electricity prices have a symmetric effect on the carbon prices but this effect is negative for the former and positive for the latter these findings are robust when using both monthly and daily data and when considering bivariate and multivariate models

rockets and feathers in power futures markets evidence from the second phase of the eu ets abstract this paper examines the possibility of asymmetric transmission of co 2 prices to electricity futures prices in the second phase of the european emission trading scheme we would like to assess whether output prices tend to respond more quickly to input price increases than decreases this phenomenon is known as rockets and feathers in the literature compared to zachmann and von hirschhausen 2008 who carried out a similar analysis for germany in the first phase of the emission trading scheme with data from 2005 to 2006 our study spans a longer timeframe july 2007 june 2010 with a presumably more mature permit market and includes three additional european countries france belgium and the netherlands results do not provide empirical evidence of statistically significant differences in the response of power prices to positive and negative shocks in co 2 allowance and fuel markets

the sustainable development index measuring the ecological efficiency of human development in the anthropocene abstract when the human development index hdi was introduced in the 1990s it was an important step toward a more sensible measure of progress one defined less by gdp growth and more by social goals but the limitations of hdi have become clear in the 21st century given a growing crisis of climate change and ecological breakdown hdi pays no attention to ecology and retains an emphasis on high levels of income that given strong correlations between income and ecological impact violates sustainability principles the countries that score highest on the hdi also contribute most in per capita terms to climate change and other forms of ecological breakdown in this sense hdi promotes a model of development that is empirically incompatible with ecological stability and impossible to universalize in this paper i propose an alternative index that corrects for these problems the sustainable development index sdi the sdi retains the base formula of the hdi but places a sufficiency threshold on per capita income and divides by two key indicators of ecological impact co2 emissions and material footprint both calculated in per capita consumption based terms and rendered vis a vis planetary boundaries the sdi is an indicator of strong sustainability that measures nations ecological efficiency in delivering human development

politics matters regulatory events as catalysts for price formation under cap and trade this paper investigates how the political process of making cap adjustments has shaped market outcomes in the world s largest cap and trade system the eu ets capitalizing on an event study method that incorporates an econometric technique designed to handle parameter instability and model uncertainty we assess the news implied price response to 29 hand collected announcements about the eu ets supply schedule our findings document a high market responsiveness to political events and reveal how market participants view the evolution of cap stringency in the light of a particular announcement we provide evidence that a sequence of strong event induced price drops evolve in the backloading decision process which is consistent with the interpretation that market participant s confidence in the political support for reform and probably the eu ets in general has been unsettled we also document positive price reactions to the 2020 and 2030 policy packages but not the 2050 roadmaps

price drivers and structural breaks in european carbon prices 2005 2007 this article aims at characterizing the daily price fundamentals of european union allowances euas traded since 2005 as part of the emissions trading scheme ets the presence of two structural changes on april 2006 following the disclosure of 2005 verified emissions and on october 2006 following the european commission announcement of stricter phase ii allocation allows to isolate distinct fundamentals evolving overtime the results extend previous literature by showing that eua spot prices react not only to energy prices with forecast errors but also to unanticipated temperatures changes during colder events besides the sub period decomposition of the pilot phase gives a better grasp of institutional and market events that drive allowance price changes

information linkage dynamic spillovers in prices and volatility between the carbon and energy markets abstract the european union emissions trading system eu ets has strengthened the information flow and connection between carbon market and energy markets which makes the carbon energy system more complicated this paper investigates information linkages and dynamic spillover effects between the carbon and energy markets we adopt a systemic time series approach to study connectedness in both returns and volatility in the carbon energy system moreover a rolling windows method is used to show the dynamic features empirical results show that brent oil prices play an important role in affecting carbon price changes and risks feedback exists from the carbon market to other energy markets and electricity prices are shown to be the biggest information receiver in the system it is also shown that the level of connectedness in the volatility system is substantially higher than that in the returns system our results can provide useful implications for policymakers to design market mechanisms and market investors to manage their portfolios

marginal abatement costs of carbon dioxide emissions and its influencing factors a global perspective abstract reducing co 2 emissions has become a major and urgent environmental goal worldwide in this paper we sample the data of 41 regions including 165 countries from 2000 to 2014 and adopt a gravity model to obtain an overview of the global flows of co 2 emissions energy consumption the global economy and capital stock since the beginning of the 21st century we then investigate global technical efficiency reduction potential shadow prices and factors influencing the marginal abatement costs of co 2 emissions based on a quadratic directional output distance function the empirical results show the following 1 the global centres of gravity for co 2 emissions energy consumption and capital stock have accelerated their shift to the asian inland in the 21st century but the global centre of gravity for the economy did not show the same trend 2 global technical inefficiency demonstrates a u shape with a turning point in 2007 average annual total global co 2 emissions could be reduced by 4482 28 mt and the global marginal abatement costs of co 2 emissions are approximately 673 74 697 73 usd t 3 the relationship between economic development and marginal abatement costs is represented by a u shaped curve the world is currently in the climbing phase of this curve implying that controlling co 2 emissions is becoming more costly moreover energy structure industrial structure and co 2 emissions are negatively correlated with marginal abatement costs finally the financial crisis has had a significant effect on marginal abatement costs

forecasting carbon futures volatility using garch models with energy volatilities abstract this article examines the volatility forecasting abilities of three approaches garch type model that uses carbon futures prices an implied volatility from carbon options prices and the k nearest neighbor model based on the results we document that garch type models perform better than an implied volatility and the k nearest neighbor model this result suggests that carbon options have little information about carbon futures due to their low trading volume we also investigate whether the volatilities of energy markets i e brent oil coal natural gas and electricity forecast following day s carbon futures volatility according to the results we suggest that brent oil coal and electricity may be used to forecast the volatility of carbon futures

multiple bubbles in the european union emission trading scheme abstract the european union emission trading scheme eu ets is the first large scale co 2 emission trading system in the world carbon allowances are financial assets potentially vulnerable to the behavior of traders and investors in fact the carbon price has been quite volatile since the inception of the market and it has recently hit very low values however to date no work exists to evaluate whether volatility and price spikes are due to episodes of speculation and price bubbles our paper fills this gap we use the recent approaches developed by phillips and yu 2010 phillips et al 2011 and phillips et al 2015a 2015b who propose a recursive right sided unit root approaches to detect and date stamp mildly explosive behaviors and carbon market exuberance we complement this methodology by using the wild bootstrap procedure by goncalves and kilian 2004 to control for the heteroschedasticity of carbon price data analyzing the eu ets front month contract price from 2005 to 2014 we find different episodes of price bubbles these episodes are not explained by similar behavior of the fundamentals but seem related to energy and environmental policy announcements our results can provide insightful policy implications in the context of the actual carbon market reform as well as the implementation of stricter financial regulations rules to co 2 trading

what happens to the relationship between eu allowances prices and stock market indices in europe abstract the stock market may reflect the economic conditions of an economy and a positive economic situation is expected to improve the companies profits which makes company shares more attractive since the expected dividends to shareholders will be larger theoretically higher economic activity leads to higher energy demand and consequently higher carbon emissions which give rise to higher eu allowances eua prices therefore the stock market and eua prices seem to be connected with causality going from the stock markets to eua prices this paper formally tests for it showing that the causality effectively runs from the stock market to the european climate exchange market furthermore the paper studies the effects of the evolution of european stock markets on the eua spot prices

allowance price drivers in the first phase of the eu ets abstract in the first phase of the eu emissions trading scheme eu ets the price per ton of co 2 initially rose to over 30 the price then collapsed to essentially zero by mid 2007 by deriving a structural model of the allowance price under the assumption of efficient markets i examine the extent to which this variation in price can be explained by marginal abatement costs i then gradually relax the model by allowing for delayed adjustment of price to fundamentals as well as by introducing lagged lhs variables the pattern of results suggests that while prices were not initially driven by marginal abatement costs this inefficiency was largely corrected after the accounting of 2005 emissions in april 2006

carbon pricing and system linking lessons from the new zealand emissions trading scheme abstract textbook theory of linking carbon systems suggests linking reduces marginal abatement costs contrasting theoretical work and policy analyses suggests that linking or at least unfettered linking may not always be beneficial the new zealand emissions trading scheme nz ets is unique in that until 2013 it allowed unlimited use of kyoto allowances nz ets thus provides an ideal context to explore the effect of linking and linking restrictions on carbon pricing of small systems using data on importation and exportation of allowances we provide the first empirical analysis of the determinants of allowance prices in the early phase of the nz ets our results indicate that imports of offsets rather than fundamentals have been the major price determinant moreover the pricing of new zealand units nzus can be placed into three distinct periods delineated by two structural breaks in the first period the system is largely autarkic in the second period as international offset prices drop below the nzu price the system becomes a price taker in the final period following policy interventions the system regains some independence the case of the nz ets shows that small trading systems need to impose or have the option to impose quantitative import restriction so as to reap the benefits lower abatement cost but not the drawbacks importation of distortions and market integrity issues of linking

modeling the price dynamics of co2 emission allowances abstract in this paper we analyze the short term spot price behavior of carbon dioxide co 2 emission allowances of the new eu wide co 2 emissions trading system eu ets after reviewing the stylized facts of this new class of assets we investigate several approaches for modeling the returns of emission allowances due to different phases of price and volatility behavior in the returns we suggest the use of markov switching and ar garch models for stochastic modeling we examine the approaches by conducting an in sample and out of sample forecasting analysis and by comparing the results to alternative approaches our findings strongly support the adequacy of the models capturing characteristics like skewness excess kurtosis and in particular different phases of volatility behavior in the returns

the market for sulfur dioxide emissions the 1990 clean air act amendments initiated the first large scale use of the tradable permit approach to pollution control the theoretical case for this approach rests on the assumption of an efficient market for emission rights the authors empirical analysis shows that the emission rights market created by the 1990 amendments had become reasonably efficient by mid 1994 they also show that the auctions specified in the amendments to jump start trading had become a small part of the overall market finally the authors demonstrate that the strategic bidding behavior discussed in the literature has had no effect on market prices copyright 1998 by american economic association

voluntary compliance with market based environmental policy evidence from the u s acid rain program the u s acid rain program implemented a nationwide market for electric utilities sulfur dioxide so2 emissions and included voluntary compliance possibilities for nonaffected sources i observe significant voluntary participation albeit with small impact on the so2 market mostly from sources with counterfactual emissions below their allowance allocations an ex post analysis suggests that costs from the resulting higher emissions outweigh savings from shifts in emissions reductions from high cost affected sources to low cost nonaffected sources further utilities voluntary participation is well explained by economic variables which provides new evidence of cost effective compliance strategies and low transaction costs

a multiscale analysis for carbon price drivers abstract this study proposes a multiscale analysis model to explore and identify the carbon price drivers at different timescales by introducing the latest multivariate empirical mode decomposition carbon price and its potential drivers are decomposed into several groups of simple modes with specific economic meanings the cointegration techniques error correction model and newey west estimator are combined to capture the carbon price drivers at similar timescales illustrated by the samples of the european union emissions trading system from 2009 to 2016 a few interesting results can be found that at the original data level among the three most important drivers of carbon price electricity price and stock index show positive impacts while coal price shows a negative impact at different timescales the effects of electricity and stock index appear comparatively earlier which drive carbon price from the short timescales and continue to strengthen however the impacts of coal oil and gas prices are lagging behind which respectively drive the carbon price at the medium and long timescales

how to explain carbon price using market micro behaviour abstractin this article we analyse the micro behaviours of the emitting companies and financial intermediaries in the european union emissions trading scheme eu ets and their influence on carbon prices based on the full sample community independent transaction log citl the micro behaviours can be observed in a closed system the micro behaviours of the emitting companies are divided into compliance trading and non compliance trading based on the emitting companies trading motivations the micro behaviours of the financial intermediaries are measured by their influence on the total supply and demand in the market then an ar garch model is established to examine the dynamic relationships between carbon prices and the micro behaviours of the emitting companies and financial intermediaries the estimation results suggest that the prices behaviours relationship is significant other important findings are as follows 1 the mean value of carbon prices positively depends on the compliance trading

covid 19 tests the market stability reserve we compare the decrease in energy demand and co2 emissions in europe during the financial crisis 2008 2009 with the expected drop in demand and emissions due to covid 19 and the price response of the eu emission trading system eu ets we ask whether the rather limited current price reduction may be due to the market stability reserve msr implemented in the eu ets between the two crises stylized facts and basic theory are complemented with simulations based on a model of the eu ets together they suggest a mixed result the msr stabilizes the eu ets price in turbulent times but imperfectly we show that the more persistent the covid 19 shock is the less the msr is able to serve its purpose

causes of the eu ets price drop recession cdm renewable policies or a bit of everything new evidence the price of eu allowances euas in the eu emissions trading scheme eu ets fell from almost 30 tco2 in mid 2008 to less than 5 tco2 in mid 2013 the sharp and persistent price decline has sparked intense debates both in academia and among policy makers about the decisive allowance price drivers in this paper we examine whether and to what extent the eua price drop can be justified by three commonly identified explanatory factors the economic recession renewable policies and the use of international credits capitalizing on marginal abatement cost theory and a broadly extended data set we find that only variations in economic activity and the growth of wind and solar electricity production are robustly explaining eua price dynamics contrary to simulation based analyses our results point to moderate interaction effects between the overlapping eu ets and renewable policies the bottom line however is that 90 of the variations of eua price changes remains unexplained by the abatement related fundamentals together our findings do not support the widely held view that negative demand shocks are the main cause of the weak carbon price signal in view of the new evidence we evaluate the eu ets reform options which are currently discussed

a literature based multi criteria evaluation of the eu ets abstract this article reviews the existing literature on the european union emission trading scheme eu ets focusing on empirical ex post research since the end of the first period 2007 the literature is presented through a multi criteria evaluation concerning environmental effectiveness despite over allocation during the first period abatement is estimated between 2 5 and 5 trade driven carbon leakage was not observed even if long term economic models predict divergent leakage estimates for certain at risk sectors the abatement target was likely to be below an economically efficient level but was reached in a fairly cost effective way even if free allocation gave rise to several distortional effects equity concerns were manifold and constitute a major drawback to the policy finally institutional feasibility can be considered positive in that the eu ets passed the european legislative process unlike the previously proposed eu wide carbon tax

the theory of rational bubbles in stock prices free disposal of equity which directly rules out the existence of negative rational bubbles in stock pric es also imposes theoretical restrictions on the possible existence o f positive rational bubbles the analysis in this paper shows that a positive rational bubble can start only on the first date of trading of a stock thus the existence of a rational bubble at any date woul d imply that the stock has been overvalued relative to market fundame ntals since the first date of trading and that prior to the first da te of trading the issuer of the stock and potential stockholders who anticipated the initial pricing of the stock expected that the stock would be overvalued copyright 1988 by royal economic society

market power and transferable property rights the appeal of using markets as a means of allocating scarce resources stems in large part from the assumption that a market will approximate the competitive ideal when competition is not a foregone conclusion the question naturally arises as to how a firm might manipulate the market to its own advantage this paper analyzes the issue of market power in the context of markets for transferable property rights first a model is developed that explains how a single firm with market power might exercise its influence this is followed by an examination of the model in the context of a particular policy problem the control of particulate sulfates in the los angeles region

modeling persistence of carbon emission allowance prices this study reexamines the issue of persistence in carbon emission allowance spot prices using daily data and covering the period from 28 2 2007 to 14 05 2014 for this purpose we use techniques based on the concept of long memory accounting for structural breaks and non linearities in the data with both of these aspects potentially affecting the degree of persistence our results indicate that while there is no evidence of non linearity when allowing for structural breaks persistence of shocks to the carbon emission allowance is markedly reduced with the same being transitory in nature for recent sub samples

time and frequency connectedness among oil shocks electricity and clean energy markets abstract this paper examines the time and frequency connectedness among electricity carbon and clean energy markets and oil price demand and supply shocks in doing so we use the spillover method proposed by diebold and yilmaz 2012 and its extension in the frequency domain by barunik and k ehlik 2018 we find increased connectedness during the global financial crisis as well as in the shale oil revolution period the total connectedness is also higher in the short run compared to the long run due to their low connectedness electricity futures can act as a risk diversifier and safe haven asset against oil shocks net pairwise directional connectedness among oil shocks and the clean energy index is higher during the shale oil revolution these results have important implications for investors with different investment time horizons

modelling the price spread between eua and cer carbon prices abstract this paper identifies factors impacting on the dynamics of the price spread between european allowances euas and certified emission reductions cers by detecting changes in the structural relationship between them while prior studies have assumed a fixed structural relationship this paper analyses the dynamic evolution of the price spread by employing a time varying parameter analysis using daily data from march 2008 to september 2011 the analysis reveals that a lack of competitive conditions in markets access constraints on the use and the availability of cers regulatory changes regarding both euas and cers and uncertainty surrounding cers can explain a significant portion of the price spread

markets in environmental governance from theory to practice abstract the aim of this paper is to clarify what is meant by markets for ecosystem services es the defining characteristic of markets is interaction through trade two main dimensions are identified as basis for classifying markets in es firstly we have markets with and without intermediaries secondly some markets for es are created by defined liabilities like caps on emissions while other trades come about voluntarily altogether six forms of markets are identified with two being incomplete the paper also offers an analysis of the most important existing markets for es using the developed classification regarding payments for ecosystem services pes most are not markets not even incomplete this is so as most resources are raised through taxes or fees command not trade moreover most payments are best characterized as subsidies cap and trade systems like those for carbon qualify as markets but depend crucially on the politically defined cap moreover it is this cap that protects the environment while the idea with markets in es is to escape command and control it is observed that c c is essential for these markets to work

consolidated dynamic pricing of power system regulation the cost and quality of regulation have been brought to the forefront of power system operations by renewable variability we propose a regulation pricing methodology based on an idea of berger and schweppe in the same manner that locational marginal prices are derived from the dual of economic dispatch let regulation prices be the dual multipliers or costate of an optimal control problem by specializing to the linear quadratic regulator we formulate a regulation pricing policy which in turn allows us to derive statistically correct payments such as imbalance fees we then construct a vickrey clarke groves mechanism to induce selfish agents to honestly report their private valuations and costs of regulation semidefinite programming descriptions of the formulation can be embedded within standard convex economic dispatch constraint sets enabling cooptimization of base load and regulation pricing the approach mechanistically produces prices for any dynamic scenario and can therefore be used to consolidate diverse regulation services we demonstrate this feature by combining traditional frequency regulation area control error and the california independent system operator s flexible ramping product in an example

thar she blows can bubbles be rekindled with experienced subjects we report 28 new experiment sessions consisting of up to three experience levels to examine the robustness of learning and error elimination among participants in a laboratory asset market and its effect on price bubbles our answer to the title question is yes we impose a large increase in liquidity and dividend uncertainty to shock the environment of experienced subjects who have converged to equilibrium and this treatment rekindles a bubble however in replications of that same challenging environment across three experience levels we discover that the environment yields a rare residual tendency to bubble even in the third experience session therefore a caveat must be placed on the effect of twice experienced subjects in asset markets in order for price bubbles to be extinguished the environment in which the participants engage in exchange must be stationary and bounded by a range of parameters experience including possible error elimination is not robust to major new environment changes in determining the characteristics of a price bubble jel c91 d83

how to improve the market efficiency of carbon trading a perspective of china abstract emissions trading scheme ets is one of the effective measures to realize energy conservation and emission reduction in order to set up a nationwide carbon emissions trading mechanism seven ets pilots have been launched in china firstly based on empirical investigation and research of seven pilots this paper analyzed the market efficiency of ets pilots from four aspects carbon price trading volume market liquidity and information transparency the result showed that the market efficiency of ets pilots is not satisfactory in spite of the fact that system designs of ets have achieved preliminary result then the reason for low market efficiency of ets pilots was discussed from some factors such as institutional arrangements market participants the supply and demand etc finally this paper puts forward some policy suggestions to improve the market efficiency of china s carbon trading market

an overview of co2 cost pass through to electricity prices in europe this paper investigates the link between wholesale electricity prices in europe and the co2 cost i e the price of european union allowances euas over the two first phases of the european union emissions trading scheme eu ets we set up a theoretical framework and an empirical model to estimate to what extent daily fluctuations of co2 costs may have impacted electricity prices regarding estimation results for the first phase of the eu ets about 42 of estimated pass through rates appear to be statistically significant while only one third of them are statistically different from zero in the second phase we try to improve those results by proposing alternative estimates based on the eu ets compliance periods

pricing emission permits in the absence of abatement abstract if emissions are stochastic and firms are unable to control them through abatement the cap in a permit market may be exceeded or not be reached i derive a binary options pricing formula that expresses the permit price as a function of the penalty for noncompliance and the probability of an exceeded cap under the assumption of no abatement i apply my model to the eu ets where the rapid introduction of the market made it difficult for firms to adjust their production technology in time for the first phase the model fits the data well implying that the permit price may have been driven by firms hedging against stochastic emissions

energy prices and co2 emission allowance prices a quantile regression approach we use a quantile regression framework to investigate the impact of changes in crude oil prices natural gas prices coal prices and electricity prices on the distribution of the co2 emission allowance prices in the united states we find that i an increase in the crude oil price generates a substantial drop in the carbon prices when the latter is very high ii changes in the natural gas prices have a negative effect on the carbon prices when they are very low but have a positive effect when they are quite high iii the impact of the changes in the electricity prices on the carbon prices can be positive in the right tail of the distribution and iv the coal prices exert a negative effect on the carbon prices

dynamic behavior of co2 spot prices co2 emission allowances are traded nowadays over the counter otc and on exchanges across the european union eu it thus becomes increasingly important for traders of these emission certificates to have a valid co2 spot price model to value potential derivatives in addition co2 emitting companies require an adequate co2 spot price model in order to better assess their production costs and support emissions related investment decisions however sufficient price history is still lacking for the european union emission trading scheme eu ets we therefore present a tractable stochastic equilibrium model reflecting stylized features of the eu ets and analyze the resulting co2 spot price dynamics our main findings are that co2 prices do not have to follow any seasonal patterns discounted prices should possess the martingale property and an adequate co2 price process should exhibit a time and price dependent volatility structure a brief empirical examination regarding market efficiency complements our analysis