IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v134y2024ics0140988324003347.html
   My bibliography  Save this article

Identifying price bubbles in global carbon markets: Evidence from the SADF test, GSADF test and LPPLS method

Author

Listed:
  • Huang, Wenyang
  • Wang, Yizhi

Abstract

Amid growing climate concerns, Emissions Trading Schemes (ETS) serve as key mechanisms for reducing greenhouse gas emissions through market forces. This study delves into the phenomenon of price bubbles within six major ETSs globally: the European Union Emissions Trading Scheme (EU ETS), the New Zealand Emissions Trading Scheme (NZ ETS), the California-Québec Emissions Trading Scheme (CQ ETS), the South Korea Emissions Trading Schemes (K-ETS), the China Emissions Trading Scheme (C-ETS), and the United Kingdom Emissions Trading Schemes (UK ETS). Employing the sup augmented Dickey-Fuller (SADF) test, generalized sup ADF (GSADF) test, and log-periodic power law singularity (LPPLS) model, our analysis aims to uncover the dynamics and implications of these bubbles. Our findings reveal varied patterns of price bubbles across the schemes, with the EU ETS showing the highest frequency and the NZ ETS exhibiting the longest durations. The period of 2021 and 2022 marked a significant increase in bubble occurrences across all ETSs, suggesting the influence of post-COVID-19 economic recovery and geopolitical tensions on market stability. These bubbles are attributed to factors including carbon market policies, macroeconomic conditions, energy price fluctuations, and market uncertainties. The study offers valuable insights for compliance firms, policymakers, and investors on navigating carbon market volatility. Understanding bubble dynamics can aid in formulating more effective emission reduction strategies, carbon pricing policies, and investment decisions. This research underscores the importance of integrating monetary policy considerations with environmental objectives within ETS frameworks, paving the way for future research on predictive bubble detection and the development of robust carbon market regulations.

Suggested Citation

  • Huang, Wenyang & Wang, Yizhi, 2024. "Identifying price bubbles in global carbon markets: Evidence from the SADF test, GSADF test and LPPLS method," Energy Economics, Elsevier, vol. 134(C).
    • Handle: RePEc:eee:eneeco:v:134:y:2024:i:c:s0140988324003347
    DOI: 10.1016/j.eneco.2024.107626
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988324003347
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2024.107626?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

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

    Corrections

    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:eee:eneeco:v:134:y:2024:i:c:s0140988324003347. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.