Abstract
Based on the trading data of the Bluenext and the European Climate Exchange (ECX), this paper analyzes the cyclic price fluctuations of the EU carbon emission rights by means of the maximum entropy spectrum and wavelet variance. The results show that: 1) there are obvious cyclical price fluctuations in the EU carbon trading market, with the longest cycle being 33 months and the shortest 5.7; 2) researches on the factors that affect the cyclical price fluctuations of carbon emission rights manifest that power prices (POWER) exert the greatest implication on the prices of carbon emission rights, followed by coal prices (COAL). For every 1% change in POWER, the price of carbon emission rights changes 10.95% towards the same direction. For every 1% change in COAL, the price of carbon emissions changes 9.28% towards the opposite; 3) research based on variance decomposition demonstrates that electricity prices contribute the most to the changes of the price of carbon emissions, and the variance contribution rate is 13% at a lag cycle of 30 days.
Highlights
IntroductionThe price of carbon emission rights has undergone severe fluctuations in the past 12 years
The EU-ETS market has been running for 12 years
The results show that: 1) there are obvious cyclical price fluctuations in the EU carbon trading market, with the longest cycle being 33 months and the shortest 5.7; 2) researches on the factors that affect the cyclical price fluctuations of carbon emission rights manifest that power prices (POWER) exert the greatest implication on the prices of carbon emission rights, followed by coal prices (COAL)
Summary
The price of carbon emission rights has undergone severe fluctuations in the past 12 years. The EUA spot price once rose to €30/ton, and its bottom price was as low as €0.01/ton. These fluctuations stem from a wide range of factors, such as seasonal factors, cyclical factors, external economic shocks and changes in a country’s political systems and policies. Is such a cycle strict or probabilistic? If there is a cycle, how long is it? What are the factors that cause the cyclical fluctuations of carbon market prices, and what are the main factors among them?
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