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Assessing the effects of climate change policy on the volatility of carbon prices in reference to the Great Recession

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  • Getachew Nigatu

Abstract

This paper examines the effects of having or not having a climate change policy on the behaviour of carbon price volatility before, within and after the 2008/09 global recession. Our Markov-regime switching model analysis shows that the voluntary carbon market at the Chicago Climate Exchange was in a high-volatile regime within, and two years before, this recession. The mandatory carbon market in the European Climate Exchange was relatively in stable and low-volatile regime over these periods, except at the end of the recession. The voluntary market exhibited more price volatility features than the mandatory one. After the recession, both markets experienced high probabilities of being at low-volatile regimes. Our results suggest that high-volatile regimes were not caused by the recession per se. However, statistical tests show that there were distinct low-and high-volatile regimes during the recession period, indicating that the recession aggravated price volatility of both markets.

Suggested Citation

  • Getachew Nigatu, 2016. "Assessing the effects of climate change policy on the volatility of carbon prices in reference to the Great Recession," Journal of Environmental Economics and Policy, Taylor & Francis Journals, vol. 5(2), pages 200-215, July.
  • Handle: RePEc:taf:teepxx:v:5:y:2016:i:2:p:200-215
    DOI: 10.1080/21606544.2015.1075906
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