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Carbon Credits and Crude Oil: An Investigation of the Price Returns Interaction in the International Market

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  • de Salles André Assis
  • Lima Renato Barros

    (Universidade Federal do Rio de Janeiro, Escola Politécnica, Av. Athos da Silveira Ramos 149, 21941-909 Rio de Janeiro, Brazil)

Abstract

This paper aims to verify the relationship between the international markets for crude oil and carbon credits. We studied the returns of prices practiced in these markets, focusing on the transmission of shocks between oil prices and carbon credit prices. The methodological approach used financial econometrics to study these variables’ risk and return relationships. Besides causality and cointegration hypothesis tests, the VECM and GARCH models were estimates. There is a short- and long-term interaction between these variables. The volatility models show a significant association between the volatilities of the two variables of interest. Fossil fuels, mainly crude oil, generate energy that has substantial restrictions. At the same time, the carbon credits market has shown significant growth that can contribute to the use of energy from fossil fuels with parsimony and responsibility. Studying these variables and their interactions contributes to understanding the importance of the carbon market.

Suggested Citation

  • de Salles André Assis & Lima Renato Barros, 2024. "Carbon Credits and Crude Oil: An Investigation of the Price Returns Interaction in the International Market," Naše gospodarstvo/Our economy, Sciendo, vol. 70(1), pages 1-12, March.
    • Handle: RePEc:vrs:ngooec:v:70:y:2024:i:1:p:1-12:n:1
    DOI: 10.2478/ngoe-2024-0001
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    Keywords

    Carbon credit; Crude oil price; VECM model; Volatility model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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