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Multiple price bubbles in global major emission trading schemes: Evidence from European Union, New Zealand, South Korea and China

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  • Wei, Yigang
  • Li, Yan
  • Wang, Zhicheng

Abstract

Emission trading scheme (ETS) is a flagship climate governance tool to achieve social minimum cost emission reduction target through market mechanism. If price bubble exists in the ETS, the achievement of emission reduction target and the resolution of market risks will be negatively impacted. This paper is one of the few, if not the first, to examine whether price bubble exists in fluctuating carbon prices in the global ETSs. In this study, supremum augmented Dickey–Fuller (SADF) and generalised SADF (GSADF) are adopted to statistically test the existence of price bubbles from the opening date to August 31, 2019 in the four ETSs in European Union, New Zealand, South Korea and Shenzhen of China. The time, frequency, severity and reasons of the emergence and termination of price bubbles in each carbon market are also analysed in detail. Results show that, 1) From the perspective of duration, significant differences exist in the duration of price bubbles amongst the four carbon markets. The price bubbles of European Union (EU), New Zealand and South Korea ETSs last for a long time, and most of the price bubbles last for >5 days. The price bubbles in Shenzhen ETS last for a short time, and the duration of all price bubbles does not exceed 3 days. 2) In terms of quantity, 8, 9, 3 and 4 price bubbles are detected in the four carbon markets in EU, New Zealand, South Korea and Shenzhen of China, respectively. 3) With regard to severity, price bubbles in EU ETS are the most serious. The main reason is that the industries being covered are the widest and the participating countries are the most in EU ETS, so EU ETS is easily impacted by industrial changes and policy adjustments in various countries. 4) The problems on price bubbles in the four ETSs are mainly closely related to macro economy, new and renewable energy, energy price and carbon market-related policies.

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  • Wei, Yigang & Li, Yan & Wang, Zhicheng, 2022. "Multiple price bubbles in global major emission trading schemes: Evidence from European Union, New Zealand, South Korea and China," Energy Economics, Elsevier, vol. 113(C).
    • Handle: RePEc:eee:eneeco:v:113:y:2022:i:c:s0140988322003760
    DOI: 10.1016/j.eneco.2022.106232
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