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The impact of verified emissions announcements on the European Union emissions trading scheme: A bilaterally modified dummy variable modelling analysis

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  • Jia, Jun-Jun
  • Xu, Jin-Hua
  • Fan, Ying

Abstract

Carbon trading scheme is easily subject to the shocks from vital information announcements or regulations modification due to its vulnerability as a man-made market. This paper investigates the impact of verified emissions announcements, which are released annually by the European Commission and span three phases (2006–2013), on carbon price returns and volatility in the European Union emissions trading scheme (EU ETS), by constructing econometric model with bilaterally modified dummy variables of high adaptability. The results show that on average, verified emissions announcements have significant impact on carbon expected returns but show a week effect on price volatility; the separate examination for each announcement event indicates heterogeneous ex-ante and ex-post impacts over time in different market contexts, but the ex-post impact dominates obviously. The verified emissions announcement remarkably causes shocks to the market and the risk of prior information leakage although it facilitates the price discovery. Meanwhile, there is an obvious asymmetry between ex-ante and ex-post impacts that is triggered by market characteristics, and it generally takes more than seven days to absorb the ex-post impacts due to the intrinsic characteristics of the EU ETS. These findings could provide reference for market traders and regulators to make robust allowance management strategy and system design.

Suggested Citation

  • Jia, Jun-Jun & Xu, Jin-Hua & Fan, Ying, 2016. "The impact of verified emissions announcements on the European Union emissions trading scheme: A bilaterally modified dummy variable modelling analysis," Applied Energy, Elsevier, vol. 173(C), pages 567-577.
  • Handle: RePEc:eee:appene:v:173:y:2016:i:c:p:567-577
    DOI: 10.1016/j.apenergy.2016.04.027
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    References listed on IDEAS

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    2. Jianfu Wang & Shiping Jin & Weiguo Bai & Yongliang Li & Yuhui Jin, 2016. "Comparative analysis of the international carbon verification policies and systems," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 84(1), pages 381-397, November.
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