The EUA-sCER Spread: Compliance Strategies and Arbitrage in the European Carbon Market

Maria Mansanet-Bataller (), Julien Chevallier, Morgan Hervé-Mignucci and Emilie Alberola
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Maria Mansanet-Bataller: Mission Climat Caisse des Dépôts - UP1 - Université Paris 1 Panthéon-Sorbonne
Morgan Hervé-Mignucci: Mission Climat Caisse des Dépôts - UP1 - Université Paris 1 Panthéon-Sorbonne
Emilie Alberola: Mission Climat Caisse des Dépôts - UP1 - Université Paris 1 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 between these two assets, 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: 2010-01-13
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00458991
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Citations: View citations in EconPapers (8)

Published in 2010

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