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Temporal restrictions on emissions trading and the implications for the carbon futures market: Lessons from the EU emissions trading scheme

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  • Daskalakis, George

Abstract

Prohibiting the intertemporal trading of emission allowances induces positive risk premia in futures prices when the trading of the contracts and their expiry take place in time periods separated by this trading ban. In Phase I of the EU Emissions Trading Scheme (EU ETS) these were in the order of about 28% of the futures price on average, depending on the contract's expiry in Phase II. Environmental policy makers should avoid such restrictions as they result in increased hedging costs for polluters that are, since emission allowances represent opportunity costs, potentially borne by consumers.

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  • Daskalakis, George, 2018. "Temporal restrictions on emissions trading and the implications for the carbon futures market: Lessons from the EU emissions trading scheme," Energy Policy, Elsevier, vol. 115(C), pages 88-91.
    • Handle: RePEc:eee:enepol:v:115:y:2018:i:c:p:88-91
    DOI: 10.1016/j.enpol.2018.01.008
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    2. Wang, Kai-Hua & Liu, Lu & Zhong, Yifan & Lobonţ, Oana-Ramona, 2022. "Economic policy uncertainty and carbon emission trading market: A China's perspective," Energy Economics, Elsevier, vol. 115(C).
    3. Jiqiang Wang & Fu Gu & Yingpeng Liu & Ying Fan & Jianfeng Guo, 2020. "An Endowment Effect Study in the European Union Emission Trading Market based on Trading Price and Price Fluctuation," IJERPH, MDPI, vol. 17(9), pages 1-13, May.
    4. Xiao Dai & Jian Wu & Liang Yan & Qian Zhang & Fangli Ruan & Dan Wang, 2019. "Industrial Structure Restructuring, Production Factor Allocation Analysis: Based on a Mineral Resource-Intensive City—Jiaozuo City," Sustainability, MDPI, vol. 11(4), pages 1-19, February.
    5. Xi Jin & Bin Zou & Chan Wang & Kaifeng Rao & Xiaowen Tang, 2019. "Carbon Emission Allocation in a Chinese Province-Level Region Based on Two-Stage Network Structures," Sustainability, MDPI, vol. 11(5), pages 1-24, March.
    6. Qianqian Guo & Zhifang Su & Chaoshin Chiao, 2022. "Carbon emissions trading policy, carbon finance, and carbon emissions reduction: evidence from a quasi-natural experiment in China," Economic Change and Restructuring, Springer, vol. 55(3), pages 1445-1480, August.
    7. Panagiotis Koromilas & Angeliki Mathioudaki & Sotirios Dimos & Dimitris Fotakis, 2023. "Modeling Intertemporal Trading of Emission Permits Under Market Power," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 84(1), pages 241-278, January.
    8. Tang, Ling & Wang, Haohan & Li, Ling & Yang, Kaitong & Mi, Zhifu, 2020. "Quantitative models in emission trading system research: A literature review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 132(C).
    9. Marc Ringel, 2018. "Tele-Coupling Energy Efficiency Polices in Europe: Showcasing the German Governance Arrangements," Sustainability, MDPI, vol. 10(6), pages 1-27, May.
    10. Yongjie Zhang & Yue Li & Dehua Shen, 2022. "Investor Attention and the Carbon Emission Markets in China: A Nonparametric Wavelet-Based Causality Test," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(1), pages 123-137, March.
    11. Jianfeng Guo & Bin Su & Guang Yang & Lianyong Feng & Yinpeng Liu & Fu Gu, 2018. "How Do Verified Emissions Announcements Affect the Comoves between Trading Behaviors and Carbon Prices? Evidence from EU ETS," Sustainability, MDPI, vol. 10(9), pages 1-17, September.
    12. Yan, Kai & Zhang, Wei & Shen, Dehua, 2020. "Stylized facts of the carbon emission market in China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 555(C).

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    More about this item

    Keywords

    Emission allowances; Intertemporal trading; Carbon futures; Risk premia; EU ETS;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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