Carbon Derivatives: A Destabilizing or a Virtuous Mechanism to Build a Carbon-Free Economy? The Example of the European CO2 Trading Scheme

8 Pages Posted: 27 Nov 2010

See all articles by Arnaud Leconte

Arnaud Leconte

Université de Nice Sophia Antipolis

Tiziana Pagano

Technofi

Date Written: November 27, 2010

Abstract

Carbon derivatives could have a strong positive effect in multiplying resources. At the same time they are also a strong transmission mechanism to concentrate risks into banks and back to non-financial actors. However, in the current European Emission Trading Scheme (EU ETS) carbon derivatives provide private sector decision-makers with inconsistent signals and are economically costly. The high volatility observed is not inherent in this kind of instrument, but is rather due to the lack of policy towards the development of an efficient carbon derivatives market and the absence of a standard pricing tool.

Keywords: Carbon, Finance, Correlation

Suggested Citation

Leconte, Arnaud and Pagano, Tiziana, Carbon Derivatives: A Destabilizing or a Virtuous Mechanism to Build a Carbon-Free Economy? The Example of the European CO2 Trading Scheme (November 27, 2010). USAEE-IAEE Working Paper No. 10-058. Available at SSRN: https://ssrn.com/abstract=1715902 or http://dx.doi.org/10.2139/ssrn.1715902

Arnaud Leconte (Contact Author)

Université de Nice Sophia Antipolis ( email )

250, rue Albert Einstein
B.P. 70
Sophia Antipolis, 06560
France

Tiziana Pagano

Technofi ( email )

Sophia Antipolis
France

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