Dynamic behavior of CO2 spot prices
CO2 emission allowances are traded nowadays over the counter (OTC) and on exchanges across the European Union (EU). It thus becomes increasingly important for traders of these emission certificates to have a valid CO2 spot price model to value potential derivatives. In addition, CO2-emitting companies require an adequate CO2 spot price model in order to better assess their production costs and support emissions-related investment decisions. However, sufficient price history is still lacking for the European Union emission trading scheme (EU ETS). We therefore present a tractable stochastic equilibrium model reflecting stylized features of the EU ETS and analyze the resulting CO2 spot price dynamics. Our main findings are that CO2 prices do not have to follow any seasonal patterns, discounted prices should possess the martingale property, and an adequate CO2 price process should exhibit a time- and price-dependent volatility structure. A brief empirical examination regarding market efficiency complements our analysis.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Svendsen, Gert Tinggaard & Vesterdal, Morten, 2002. "CO2 trade and market power in the EU electricity sector," Working Papers 02-11, University of Aarhus, Aarhus School of Business, Department of Economics.
- Godby, Robert W. & Mestelman, Stuart & Muller, R. Andrew & Welland, J. Douglas, 1997.
"Emissions Trading with Shares and Coupons when Control over Discharges Is Uncertain,"
Journal of Environmental Economics and Management,
Elsevier, vol. 32(3), pages 359-381, March.
- Stuart Mestelman & Andrew Muller, 1997. "Emissions Trading with Shares and Coupons when Control over Discharges is Uncertain," McMaster Experimental Economics Laboratory Publications 1997-01, McMaster University.
- Schennach, Susanne M., 2000. "The Economics of Pollution Permit Banking in the Context of Title IV of the 1990 Clean Air Act Amendments," Journal of Environmental Economics and Management, Elsevier, vol. 40(3), pages 189-210, November.
- Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
- Joskow, Paul L & Schmalensee, Richard & Bailey, Elizabeth M, 1998. "The Market for Sulfur Dioxide Emissions," American Economic Review, American Economic Association, vol. 88(4), pages 669-685, September.
- Cronshaw, Mark B & Brown-Kruse, Jamie, 1996. "Regulated Firms in Pollution Permit Markets with Banking," Journal of Regulatory Economics, Springer, vol. 9(2), pages 179-189, March.
- Günter Franke, 2005. "What Can We Expect From the New Trade of C02-Allowances?," CoFE Discussion Paper 05-11, Center of Finance and Econometrics, University of Konstanz. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:56:y:2008:i:2:p:180-194. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.