CO2 Prices and Portfolio Management

Bataller, Maria Mansanet; Tornero, Ángel Pardo

doi:10.2139/ssrn.1156975

Cited by 14 publications

(6 citation statements)

References 18 publications

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“…This latter result is similar to Alberola et al (2008a) and is perhaps linked to the fact that there is empirical evidence that during the Phase I, carbon price has induced some emissions abatement but only in two markets: Germany, with intra-fuel substitution (brown to hard coal), and the UK, where power generation has slightly increased CO 2 efficiency (Convery et al, 2008). The negative sign of the stock price coefficient suggests that, in a context of low environmental constraint despite reasonable economic growth, CO 2 allowances increase the diversification of a financial portfolio and reduce the overall investment risk (Mansanet-Bataller et al, 2008). On the whole, while a cointegrating relationship exists for both phases, the nature of this relationship is different for the two subperiods.…”

Section: Cointegration and Causality Resultsmentioning

confidence: 99%

“…From a methodological viewpoint, we consider daily futures contracts which are more traded and less sensitive to the important structural changes that have occurred on the spot market (Mansanet-Bataller and Pardo, 2008). Similarly to Bredin and Muckley (2010), we rely on cointegration techniques to identify the carbon price determinants both on the whole period (June 24, 2005 to December 20, 2010), and on the two subperiods corresponding to Phases I and II of the EU ETS.…”

Section: Carbon Price Drivers: Phase I Versus Phase Ii Equilibrium? Nmentioning

confidence: 99%

“…These contracts are traded on the ECX platform, which is the leading global marketplace for trading carbon dioxide emissions and the most liquid after the OTC market. We focus on futures contracts-rather than on spot ones-because (i) they are characterized by higher traded volumes, and (ii) they have not encountered the important structural breaks observed on the spot market (see Pardo, 2008, andBredin andMuckley, 2010). It should be noticed that various expiry dates are available on the ECX database for these contracts, and we have implemented our analysis for expiry dates until December 2012.…”

Section: Datamentioning

confidence: 99%

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Carbon price drivers: Phase I versus Phase II equilibrium?

2012

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The aim of this paper is to investigate the determinants of the carbon price during the two phases of the European Union Emission Trading Scheme (EU ETS). More specifically, relying on daily EU allowance futures contracts, we test whether the carbon price drivers identified for Phase I still hold for Phase II and evolve toward a long-run relationship. Using cointegration techniques and accounting for the 2006 structural break on the carbon market, we show that while a cointegrating relationship exists for both phases of the EU ETS, the nature of this equilibrium relationship is different across the two subperiods, with an increasing role of fundamentals in Phase II. Deriving equilibrium values, we show that the carbon price tends to be undervalued since the end of 2009.

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Section: Cointegration and Causality Resultsmentioning

confidence: 99%

Section: Carbon Price Drivers: Phase I Versus Phase Ii Equilibrium? Nmentioning

confidence: 99%

Section: Datamentioning

confidence: 99%

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Carbon price drivers: Phase I versus Phase II equilibrium?

2012

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“…EUAs would offer diversification benefits to investors in traditional asset classes when correlations are low and remain low during periods of market turbulence. As this is apparently not the case for the carbon-stock link, the diversification potential of EUAs to equity market investors is much weaker than believed (Mansanet-Bataller and Pardo, 2008). In contrast, an investor holding a portfolio with longer-term governmental bonds might benefit from introducing EUAs to her investment set.…”

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confidence: 92%

Dynamic linkages among carbon, energy and financial markets: a smooth transition approach

Koch

2014

Applied Economics

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This article explores how price linkages between carbon allowances and market fundamentals in the EU Emissions Trading Scheme (EU ETS) vary over time. I adopt a multivariate GARCH model that allows the conditional correlation between carbon, energy and financial prices to change smoothly across regimes governed by functions of two transition variables that explain why price linkages vary. I use (i) time as transition variable to allow for structural changes associated with institutional advances in the EU ETS and (ii) implied volatility to account for heterogeneity in the behaviour of correlations in times of distress compared to calm periods. The results point to a new pricing regime with much closer carbonenergy price linkages in the second phase of the EU ETS. Furthermore, I find that correlations depend on market uncertainty conditions, which exposes the link between carbon and financial markets due to common macroeconomic shocks during the current financial crisis.

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“…Chevallier (2009) andM. Mansanet-Bataller andA. Pardo (2011) suggest that including CO 2 allowances in a portfolio of equity, bonds and energy assets can reduce risk.…”

Section: Literaturementioning

confidence: 99%

The Role of Hedging in Carbon Markets

Schopp

Neuhoff

2013

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractIn the European Emissions Trading System, power generators hold CO 2 allowances to hedge for future power sales. First, we model their aggregate hedging demand in response to changes in expectations of future fuel, carbon and power prices from forward prices. This partial equilibrium analysis is then integrated into a two period model of the supply and demand of CO 2 allowances considering also emissions impact and banking of allowances by speculative investors. We find that hedging flexibility can balance a CO 2 allowance surplus in the range of 1.1 to 1.6 billion t CO 2 at discount rates of future CO 2 allowances between 0 to 10%. If the surplus exceeds this level, then the rate at which today's carbon prices discount expected future prices increases. This points to the value of reducing the surplus, estimated to be 2.6 billion t CO 2 allowances in 2015, by about 1.3 billion t CO 2 , thus ensuring that hedging makes a significant contribution to stabilise carbon prices.

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CO2 Prices and Portfolio Management

Cited by 14 publications

References 18 publications

Carbon price drivers: Phase I versus Phase II equilibrium?

Carbon price drivers: Phase I versus Phase II equilibrium?

Dynamic linkages among carbon, energy and financial markets: a smooth transition approach

The Role of Hedging in Carbon Markets

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