Liquidity Effects on Carbon Financial Instruments in the EU Emissions Trading Scheme: New Evidence from the Kyoto Commitment Phase

30 Pages Posted: 16 Jul 2011 Last revised: 12 Jan 2014

See all articles by Gbenga Ibikunle

Gbenga Ibikunle

University of Edinburgh; European Capital Markets Cooperative Research Centre

Andros Gregoriou

University of East Anglia

Naresh Pandit

University of East Anglia (UEA) - Norwich Business School

Date Written: July 2, 2011

Abstract

The EU Emissions Trading Scheme (EU-ETS), the major policy tool of the EU for achieving its Kyoto target, is the largest pollution permit market in the world. Following the lessons learned from the trial phase (2005-2007), new measures were adopted for the Kyoto commitment period (2008-2012) in order to enhance market quality, thereby reducing emissions. This study explores liquidity effects after the introduction of the new regime of rules for Kyoto commitment period. It finds evidence of a sustained increase in the liquidity of the carbon permits as a result of the new trading rules. However, we also find evidence of reductions in liquidity following regulatory changes after the commencement of the current phase.

Keywords: European Union Emissions Trading Scheme, Greenhouse Gas Emissions, Liquidity, Climate Change

JEL Classification: G10, G14, G18

Suggested Citation

Ibikunle, Gbenga and Gregoriou, Andros and Pandit, Naresh, Liquidity Effects on Carbon Financial Instruments in the EU Emissions Trading Scheme: New Evidence from the Kyoto Commitment Phase (July 2, 2011). Available at SSRN: https://ssrn.com/abstract=1886586 or http://dx.doi.org/10.2139/ssrn.1886586

Gbenga Ibikunle

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

European Capital Markets Cooperative Research Centre ( email )

Viale Pidaro 42
Pescara, 65121
Italy

Andros Gregoriou (Contact Author)

University of East Anglia ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

Naresh Pandit

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

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