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Integration of the Global Emissions Trading Markets

Author

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  • Bruce Mizrach

    (Rutgers University)

Abstract

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.

Suggested Citation

  • Bruce Mizrach, 2009. "Integration of the Global Emissions Trading Markets," Departmental Working Papers 200901, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:200901
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    Citations

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    Cited by:

    1. Hilary Sigman, 2011. "Monitoring and Enforcement of Climate Policy," NBER Chapters, in: The Design and Implementation of US Climate Policy, pages 213-225, National Bureau of Economic Research, Inc.
    2. Nazifi, Fatemeh, 2013. "Modelling the price spread between EUA and CER carbon prices," Energy Policy, Elsevier, vol. 56(C), pages 434-445.
    3. Omid Sabbaghi & Navid Sabbaghi, 2014. "An empirical analysis of the Carbon Financial Instrument," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(2), pages 209-234, April.

    More about this item

    Keywords

    carbon; greenhouse gases; emission allowances; market architecture; cointegration;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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