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How Do Verified Emissions Announcements Affect the Comoves between Trading Behaviors and Carbon Prices? Evidence from EU ETS

Jianfeng Guo (), Bin Su (), Guang Yang (), Lianyong Feng (), Yinpeng Liu () and Fu Gu ()
Additional contact information
Jianfeng Guo: Institutes of Science and Development, Chinese Academy of Sciences, Beijing 100190, China
Bin Su: Energy Studies Institute, National University of Singapore, Singapore 119620, Singapore
Guang Yang: School of Business Administration, China University of Petroleum-Beijing, Beijing 102249, China
Lianyong Feng: School of Business Administration, China University of Petroleum-Beijing, Beijing 102249, China
Yinpeng Liu: Institutes of Science and Development, Chinese Academy of Sciences, Beijing 100190, China
Fu Gu: Department of Industrial and System Engineering, Zhejiang University, Hangzhou 310027, China

Sustainability, 2018, vol. 10, issue 9, 1-17

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.

Keywords: European Union emissions trading scheme; carbon allowance; carbon price; verified emissions announcement; micro-behavior (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2018
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