IDEAS home Printed from
   My bibliography  Save this article

Market risk in carbon market: an empirical analysis of the EUA and sCER


  • Bao-jun Tang


  • Cheng Shen
  • Yi-fan Zhao


The paper uses a capital asset pricing model to analyze the market risk in the European Union Emission Trading System (EU ETS) and clean development mechanisms (CDM) and Zipf analysis technology to analyze the carbon price volatility in different expectations of returns in the two markets. The results show that the systematic risk of the EU ETS market is around 0.07 %, but the CDM market is clearly divided into two stages; the systematic risk of the futures contracts in the first stage (DEC09–DEC12) is less than the EU ETS market, but the systematic risk of the futures contracts that enter the market is greater than the EU ETS market and has a higher market sensitivity, although on the unsystematic risk. The CDM market is always greater than the EU ETS market. Abnormal returns in the two carbon markets are both lower than 0.02 %, but CDM is higher. The probability of price down is greater than that of price up. The carbon price is affected by market mechanisms and external factors (economic crisis and environmental policies) in the low expectations of returns. However, in the high expectations of returns, compared with the CDM market, the carbon price change in the EU ETS market is less stable and has higher risks. Copyright Springer Science+Business Media Dordrecht 2015

Suggested Citation

  • Bao-jun Tang & Cheng Shen & Yi-fan Zhao, 2015. "Market risk in carbon market: an empirical analysis of the EUA and sCER," 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. 75(2), pages 333-346, February.
  • Handle: RePEc:spr:nathaz:v:75:y:2015:i:2:p:333-346
    DOI: 10.1007/s11069-014-1309-y

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Cramton, Peter & Kerr, Suzi, 2002. "Tradeable carbon permit auctions: How and why to auction not grandfather," Energy Policy, Elsevier, vol. 30(4), pages 333-345, March.
    2. Feng, Zhen-Hua & Zou, Le-Le & Wei, Yi-Ming, 2011. "Carbon price volatility: Evidence from EU ETS," Applied Energy, Elsevier, vol. 88(3), pages 590-598, March.
    3. Feng, Zhen-Hua & Wei, Yi-Ming & Wang, Kai, 2012. "Estimating risk for the carbon market via extreme value theory: An empirical analysis of the EU ETS," Applied Energy, Elsevier, vol. 99(C), pages 97-108.
    4. Barbara Buchner & Carlo Carraro & A. Denny Ellerman, 2006. "The Allocation of European Union Allowances: Lessons, Unifying Themes and General Principles," Working Papers 0615, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    5. repec:dau:papers:123456789/4210 is not listed on IDEAS
    6. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
    7. Fichtner, W. & Goebelt, M. & Rentz, O., 2001. "The efficiency of international cooperation in mitigating climate change: analysis of joint implementation, the clean development mechanism and emission trading for the Federal Republic of Germany, th," Energy Policy, Elsevier, vol. 29(10), pages 817-830, August.
    8. Chevallier, Julien, 2009. "Carbon futures and macroeconomic risk factors: A view from the EU ETS," Energy Economics, Elsevier, vol. 31(4), pages 614-625, July.
    9. Tang, Bao-jun & Shen, Cheng & Gao, Chao, 2013. "The efficiency analysis of the European CO2 futures market," Applied Energy, Elsevier, vol. 112(C), pages 1544-1547.
    10. Alberola, Emilie & Chevallier, Julien & Cheze, Benoi^t, 2008. "Price drivers and structural breaks in European carbon prices 2005-2007," Energy Policy, Elsevier, vol. 36(2), pages 787-797, February.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Wan-Yu Liu & Qunwei Wang, 2016. "Optimal pricing of the Taiwan carbon trading market based on a demand–supply model," 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 209-242, November.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:nathaz:v:75:y:2015:i:2:p:333-346. 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: (Sonal Shukla) or (Springer Nature Abstracting and Indexing). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.