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EUA and sCER Phase II Price Drivers: Unveiling the reasons for the existence of the EUA-sCER spread

Author

Listed:
  • Maria Mansanet-Bataller

    (Mission Climat Caisse des Dépôts - UP1 - Université Paris 1 Panthéon-Sorbonne)

  • Julien Chevallier

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis)

  • Morgan Hervé-Mignucci

    (Mission Climat Caisse des Dépôts - UP1 - Université Paris 1 Panthéon-Sorbonne)

  • Emilie Alberola

    (HEC Paris - Recherche - Hors Laboratoire - HEC Paris - Ecole des Hautes Etudes Commerciales, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article studies the price relationships between EU emissions allowances (EUAs) - valid under the EU Emissions Trading Scheme (EU ETS) - and secondary Certified Emissions Reductions (sCERs)-established from primary CERs generated through the Kyoto Protocol's Clean Development Mechanism (CDM). Given the price differences between EUAs and sCERs, financial and industrial operators may benefit from arbitrage strategies by buying sCERs and selling EUAs (i.e. selling the EUA-sCER spread) to cover their compliance position as industrial operators are allowed to use sCERs towards compliance with their emissions cap within the European system up to 13.4%. Our central results show that the spread is mainly driven by EUA prices and market microstructure variables and less importantly, as we would expect, by emissions-related fundamental drivers. This might be justified by the fact that the EU ETS remains the greatest source of CER demand to date.

Suggested Citation

  • Maria Mansanet-Bataller & Julien Chevallier & Morgan Hervé-Mignucci & Emilie Alberola, 2011. "EUA and sCER Phase II Price Drivers: Unveiling the reasons for the existence of the EUA-sCER spread," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00991939, HAL.
    • Handle: RePEc:hal:cesptp:hal-00991939
    DOI: 10.1016/j.enpol.2010.10.047
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