Variance risk premia in CO2 markets: A political perspective

Dennis Reckling

Energy Policy, 2016, vol. 94, issue C, 345-354

Abstract: The European Commission discusses the change of free allocation plans to guarantee a stable market equilibrium. Selling over-allocated contracts effectively depreciates prices and negates the effect intended by the regulator to establish a stable price mechanism for CO2 assets. Our paper investigates mispricing and allocation issues by quantitatively analyzing variance risk premia of CO2 markets over the course of changing regimes (Phase I-III) for three different assets (European Union Allowances, Certified Emissions Reductions and European Reduction Units). The research paper gives recommendations to regulatory bodies in order to most effectively cap the overall carbon dioxide emissions.

Keywords: Cap-and-trade; Variance risk premia; Emission reduction; ETS; Kyoto Protocol; Carbon price; Price collar (search for similar items in EconPapers)
JEL-codes: E61 G00 G14 G28 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:94:y:2016:i:c:p:345-354

DOI: 10.1016/j.enpol.2016.04.024

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