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| Author: | Seifert, J. Uhrig-Homburg, M. Wagner, M. |
| Title: | Dynamic behavior of CO2 spot prices |
| Journal: | Journal of Environmental Economics and Management
2008 : SEP, VOL. 56:2, p. 180-194 |
| Index terms: | allowances prices European Union |
| Freeterms: | emission trading |
| Language: | eng |
| Abstract: | Carbon dioxide (CO2) emission allowances are traded nowadays over the counter and on exchanges across the European Union (EU). It is important for traders of these emission certificates to have a valid CO2 spot price model to value potential derivatives. CO2-emitting companies require this model in order to better assess their production costs and support emissions-related investment decisions. This paper presents a tractable stochastic equilibrium model reflecting stylized features of the EU emissions trading scheme and analyze the resulting CO2 spot price dynamics. The findings indicate that CO2 prices do not have to follow any seasonal patterns and discounted prices should possess the martingale property. In addition, an adequate CO2 price process should exhibit a time- and price-dependent volatility structure. |
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