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EUA and sCER phase II price drivers: Unveiling the reasons for the existence of the EUA-sCER spread

Emilie Alberola, Maria Mansanet-Bataller (), Julien Chevallier and Morgan Hervé-Mignucci
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Emilie Alberola: HEC Paris - Recherche - Hors Laboratoire - HEC Paris - Ecole des Hautes Etudes Commerciales
Maria Mansanet-Bataller: Mission Climat Caisse des Dépôts - UP1 - Université Panthéon-Sorbonne
Morgan Hervé-Mignucci: Mission Climat Caisse des Dépôts - UP1 - Université Panthéon-Sorbonne

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Abstract: This article studies the price relationships between EU emissions allowances (EUAs) - valid under the EU Emissions Trading Scheme (EU ETS) - and secondary Certified Emissions Reductions (sCERs)--established from primary CERs generated through the Kyoto Protocol's Clean Development Mechanism (CDM). Given the price differences between EUAs and sCERs, financial and industrial operators may benefit from arbitrage strategies by buying sCERs and selling EUAs (i.e. selling the EUA-sCER spread) to cover their compliance position as industrial operators are allowed to use sCERs towards compliance with their emissions cap within the European system up to 13.4%. Our central results show that the spread is mainly driven by EUA prices and market microstructure variables and less importantly, as we would expect, by emissions-related fundamental drivers. This might be justified by the fact that the EU ETS remains the greatest source of CER demand to date.

Keywords: EUA-sCER spread; Arbitrage; Emissions markets (search for similar items in EconPapers)
Date: 2011-03
Note: View the original document on HAL open archive server: https://hal-hec.archives-ouvertes.fr/hal-00575614
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Published in Energy Policy, Elsevier, 2011, 39 (3), pp.1056-1069. 〈10.1016/j.enpol.2010.10.047〉

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00575614

DOI: 10.1016/j.enpol.2010.10.047

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