Integration of the Global Emissions Trading Markets
Emissions markets have emerged in Europe, the U.S., and around the globe. This paper analyzes the market structure of trading in these instruments. Within the EU ETS, I find, after controlling for a structural break in April 2006, that the major spot and futures exchanges in Europe are cointegrated. The spot and futures prices for both Phase I and Phase II EUA are also cointegrated, but the futures curve beyond the calendar year evolves independently. CERs are also not yet integrated with EUA prices. Futures prices efficiently predict auction outcomes in both the U.S. Acid Rain SO2 auctions and carbon prices in the the Regional Greenhouse Gas Initiative. The voluntary markets in the U.S. were cointegrated with EUA prices until the introduction of mandatory cap and trade legislation in the Congress.
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