Hedging Strategies in Carbon Emission Price Dynamics: Implications for Shipping Markets

Theodoros Syriopoulos, Efthymios Roumpis () and Michael Tsatsaronis
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Efthymios Roumpis: Ports Management and Shipping Department, School of Economics and Political Sciences, National and Kapodistrian University of Athens, 15772 Athens, Greece
Michael Tsatsaronis: Ports Management and Shipping Department, School of Economics and Political Sciences, National and Kapodistrian University of Athens, 15772 Athens, Greece

Energies, 2023, vol. 16, issue 17, 1-27

Abstract: The European Union (EU) has agreed to gradually include shipping in the EU emissions trading scheme (EU ETS), which makes shipping companies vulnerable to carbon price fluctuations. The aim of this paper is to investigate the effectiveness of carbon and petroleum futures contracts in managing carbon and bunker risks. We examine the effectiveness of alternative hedging methods, including both static and dynamic approaches, to estimate optimal hedge ratios under single and composite cross-hedge settings. Our results show that carbon future contracts are important for hedging the carbon emission allowances price risk, and Brent oil futures are the most effective instrument for out-of-sample hedging of bunker prices. In addition, the hedging effectiveness indicates that conventional methods outperform the sophisticated models in terms of variance reduction. Our study offers new insights into how the carbon and bunker markets relate to a combination hedging in reducing the joint price risk, which can be used to promote risk management in the market.

Keywords: emissions trading scheme; shipping; hedging; carbon emission; bunker risk (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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