Integration of the global carbon markets
AbstractThis paper analyzes the market architecture and common factors of emission reduction instruments in Europe and North America. Spot and futures prices across exchanges in Europe are cointegrated, but the futures curve beyond the calendar year evolves independently. Despite narrower spreads, political uncertainties about the Clean Development Mechanism have kept EUA and CER prices from converging. RGGI allowances share a common trend with EUA, and the European markets adjust to the U.S. price trend. A $0:10 shock to RGGI prices leads to a one-month $0:64 cumulative increase in EUA prices. The introduction of cap and trade legislation in the U.S. has broken a cointegrating relationship in voluntary prices. Voluntary instruments that are convertible into mandatory allowances imply less than a 20% probability of price convergence between the U.S. and Europe by 2013.
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Bibliographic InfoArticle provided by Elsevier in its journal Energy Economics.
Volume (Year): 34 (2012)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/eneco
Carbon; Greenhouse gases; Emission allowances; Market architecture; Cointegration;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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