EU carbon price volatility from the COVID-19 pandemic

Amane Saito () and Hisashi Tanizaki
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Amane Saito: The University of Osaka
Hisashi Tanizaki: The University of Osaka

SN Business & Economics, 2025, vol. 5, issue 12, 1-29

Abstract: Abstract This study investigates the key factors influencing European Union Allowances (EUA) price volatility, with a particular focus on the sharp increase in prices after 2021. EUA is traded in the European Union Emissions Trading System (EU-ETS), which plays a central role in European climate policy. Understanding price dynamics is therefore critical for both market participants and policymakers. Using a stochastic volatility (SV) model, the analysis incorporates two categories of explanatory variables: market anomalies such as leverage effect and holiday effect and market structure, including trading activity and market depth. In addition, it evaluates the impacts of three recent macro-financial developments: (1) Environmental, Social and Governance (ESG) investment, (2) the COVID-19 pandemic, and (3) monetary easing by the European Central Bank (ECB). The results show that market anomalies significantly contribute to volatility. While ESG investment has a limited effect, both the pandemic and monetary easing have had substantial impacts on EUA price volatility.

Keywords: Carbon price; EUA; EU-ETS; COVID-19; SV model; ESG (search for similar items in EconPapers)
JEL-codes: G10 P28 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s43546-025-00955-z

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