Abstract
Verified emissions announcements are the most influential events in the European Union emissions trading scheme (EU ETS); they reveal demand information and have a significant impact on the carbon market. The extant literature tends to focus on examining the impacts of these verification events on the prices of carbon allowances, while scholars barely discuss how trading behaviors react to the announcements. Moreover, most of the studies are carried out from a macroeconomic perspective. This paper fills this gap by analyzing the impacts of the verified emissions announcements on the comoves of trading behaviors and carbon prices in Phase I (2005–2007) and Phase II (2008–2012). Specifically, we construct GARCH models to investigate the events’ heterogeneous influences in different periods, i.e., the complete periods, the announcement periods, the pre- and post-announcement periods. We observe that the verified emissions announcements boost the volume of compliance trading, particularly in Phase I. Furthermore, we show that the over-allocation of carbon allowances can be even more influential in disturbing the comoves than the verification events. Our microeconomic findings confirm the maturity of EU ETS in Phase II, exhibiting good agreement with the extant macroeconomic literature.
Highlights
Emissions trading schemes for CO2 have been established across the globe in response to the commitment to an 8% reduction in greenhouse gases (GHG) in the Kyoto Protocol [1,2]: the European Union Emission Trading Scheme (EU ETS) in Europe [3], the Regional Greenhouse Gas Initiative in the United States [4], the New South Wales Greenhouse Gas Abatement Scheme in Australia [5], Pilot Carbon Trading Markets in selected provinces and cities in China [6,7,8], and the Korean Emissions Trading Scheme in the Republic of Korea [9]
This paper analyzes the impacts of verified emissions announcements on the comoves between trading behaviors and carbon prices in EU ETS based on firm-level transaction data
We observe that verification events trigger massive transactions, and the volumes of trading behaviors occurring in the announcement periods in Phase I are greater than in Phase II
Summary
Emissions trading schemes for CO2 have been established across the globe in response to the commitment to an 8% reduction in greenhouse gases (GHG) in the Kyoto Protocol [1,2]: the European Union Emission Trading Scheme (EU ETS) in Europe [3], the Regional Greenhouse Gas Initiative in the United States [4], the New South Wales Greenhouse Gas Abatement Scheme in Australia [5], Pilot Carbon Trading Markets in selected provinces and cities in China [6,7,8], and the Korean Emissions Trading Scheme in the Republic of Korea [9]. The verified emissions announcements reveal the demand information for European Union Allowances (EUAs), carbon emission allowances that are traded in EU ETS. EU ETS is essentially a cap-and-trade system, in which the periodical supply of EUAs is predetermined [17]. These verification events are institutional information disclosure, providing authenticated information to a market that is full of speculation [18]. The verified emissions announcements have a spectrum of strong market effects, as the efficiency of EU ETS is affected by the incorporation of this piece of official information. A close examination of the impacts of these events is highly desirable and of great importance, for the sake of analyzing the status quo and formulating future policy to manage the carbon market
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