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How to explain carbon price using market micro-behaviour?

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  • Ying Fan
  • Yin-Peng Liu
  • Jian-Feng Guo

Abstract

In 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 of the emitting companies and the micro-behaviours of the financial intermediaries; (2) non-compliance buying increases the volatility of carbon prices, while the non-compliance selling stabilizes it and (3) the micro-behaviours of the emitting companies in the lower 50% in terms of emission levels have no significant influence on the mean carbon price, but their non-compliance buying stabilizes the carbon price.

Suggested Citation

  • Ying Fan & Yin-Peng Liu & Jian-Feng Guo, 2016. "How to explain carbon price using market micro-behaviour?," Applied Economics, Taylor & Francis Journals, vol. 48(51), pages 4992-5007, November.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:51:p:4992-5007
    DOI: 10.1080/00036846.2016.1170930
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    Cited by:

    1. Borghesi, Simone & Flori, Andrea, 2018. "EU ETS facets in the net: Structure and evolution of the EU ETS network," Energy Economics, Elsevier, vol. 75(C), pages 602-635.
    2. Schleich, Joachim & Lehmann, Sascha & Cludius, Johanna & Abrell, Jan & Betz, Regina Annette & Pinkse, Jonatan, 2020. "Active or passive? Companies' use of the EU ETS," Working Papers "Sustainability and Innovation" S07/2020, Fraunhofer Institute for Systems and Innovation Research (ISI).
    3. Dai, Peng-Fei & Xiong, Xiong & Duc Huynh, Toan Luu & Wang, Jiqiang, 2022. "The impact of economic policy uncertainties on the volatility of European carbon market," Journal of Commodity Markets, Elsevier, vol. 26(C).
    4. Jiqiang Wang & Yinpeng Liu & Ying Fan & Jianfeng Guo, 2020. "The Impact of Industry on European Union Emissions Trading Market—From Network Perspective," Energies, MDPI, vol. 13(21), pages 1-16, October.
    5. Yinpeng Liu & Xiangyun Gao & Jianfeng Guo, 2018. "Network Features of the EU Carbon Trade System: An Evolutionary Perspective," Energies, MDPI, vol. 11(6), pages 1-16, June.
    6. He, Ling-Yun & Chen, Kun-Xian, 2023. "Does China's regional emission trading scheme lead to carbon leakage? Evidence from conglomerates," Energy Policy, Elsevier, vol. 175(C).
    7. Jianfeng Guo & Bin Su & Guang Yang & Lianyong Feng & Yinpeng Liu & Fu Gu, 2018. "How Do Verified Emissions Announcements Affect the Comoves between Trading Behaviors and Carbon Prices? Evidence from EU ETS," Sustainability, MDPI, vol. 10(9), pages 1-17, September.
    8. Jiqiang Wang & Fu Gu & Yingpeng Liu & Ying Fan & Jianfeng Guo, 2020. "An Endowment Effect Study in the European Union Emission Trading Market based on Trading Price and Price Fluctuation," IJERPH, MDPI, vol. 17(9), pages 1-13, May.

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