Carbon Rights and Emissions in the Energy Industry

Abstract

In this chapter, we examine high frequency order imbalance in the European Union emissions trading system carbon market at announcements of current and prospective economic activity and verified emissions. We verify that analysts do strive to forecast announcements accurately but that our scheduled public announcements nevertheless indeed do contain important surprise components. Our findings suggest that the preponderance of the order imbalance related information assimilation in carbon emission rights occurs within 5 min of the German (DE NO) and European Union new order (EU NO), European Union industrial production (EU IP) and United States non-farm payroll (US NFP) scheduled announcements. This is new evidence of information assimilation in the carbon emissions market. The extent of information assimilation is documented for 15 min both before and after each announcement in contiguous 5-min windows, and relative to same time interval observations on non-announcement days. The findings are of especial importance to firms in the energy sector as, above certain capacity thresholds, power stations and other combustion plants, oil refineries and coke ovens are regulated in the European Union emissions trading system.