Carbon financial markets underlying climate risk management, pricing and forecasting: Fundamental analysis

Adil El Amri, Rachid Boutti, Salah Oulfarsi, Florence Rodhain () and Brahim Bouzahir
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Adil El Amri: ENCG El Jadida
Rachid Boutti: ENCG Agardir
Salah Oulfarsi: ENCG El Jadida
Florence Rodhain: MRM - Montpellier Research in Management - UPVM - Université Paul-Valéry - Montpellier 3 - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School - UM - Université de Montpellier
Brahim Bouzahir: ENCG El Jadida

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Abstract: Climate Change (CC) is a major issue of our century. Controlling the constraints of Greenhouse Gas (GHG) emissions through transformation into opportunities, in an organization to increase industrial production, has become a necessity. The main reason for this adoption was the effectiveness of energy management and responsible linkages that are being developed to determine the issues and opportunities of carbon finance for organizations. Through analysis of the European Union Emissions Trading Scheme (EU ETS) and the Clean Development Mechanism (CDM), this article presents and demonstrates a variety of determinants of CO2 prices (EUA) to be used in econometric techniques. This paper details the main carbon price drivers related to institutional decisions, energy prices and weather events. Our study focuses on price changes in the EUA, being the most liquid carbon asset. In this regard, we highlighted the daily spot price of the EUA to highlight the daily changes affecting this price, given the high volatility in this Carbon financial market. The treatments of the determinants of CO2 prices (EUA) can be used to analyze the evolving and expanding Carbon financial markets sphere. It features stylized facts about Carbon financial markets from an economics and management perspective, as well as covering key aspects of pricing strategies (institutional decisions, energy prices and extreme weather events), risk and portfolio management. Aimed at those with fundamental analysis, the CO2 prices within the framework of the EU ETS depend on several determinants. This paper constitutes an introduction to emission trading and an overview of the regulations governing Carbon financial markets. First, we detail the price changes in the EUA and primary energy prices. Second, we introduce the main characteristics of emissions trading, be it in terms of spatial and temporal limits, Clean Dark Spread, Clean Spark Spread and Switch Price. Third, we provide a descriptive analysis of atmospheric variables, structural variations and the Subprime crisis and their impacts in the price development of EU CO2 allowances.

Keywords: Fundamental analysis; European Union Emissions Trading Scheme; Clean Development Mechanism (CDM); Determinants of CO2 prices (EUA); Climate risk management. (search for similar items in EconPapers)
Date: 2020
Note: View the original document on HAL open archive server: https://hal.science/hal-03120782v1
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Citations: View citations in EconPapers (3)

Published in Financial Markets, Institutions and Risks, 2020, 4 (4), pp.31-44. ⟨10.21272/fmir.4(4).31-44.2020⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03120782

DOI: 10.21272/fmir.4(4).31-44.2020

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