Impact of Allowance Submissions in European Carbon Emission Markets

30 Pages Posted: 17 Aug 2014 Last revised: 14 May 2015

See all articles by Dennis Philip

Dennis Philip

Durham University Business School

Yukun Shi

University of Glasgow

Date Written: March 20, 2015


This paper studies the impact of the April allowance submissions mandate under the European Union emission trading scheme (EU ETS) in carbon emission markets. Using intraday order flow data, we test for the cross-market efficiency of spot-futures dynamics and find that the equilibrium level, adjustment speed and no-arbitrage boundaries of the spot and futures relationship shift subsequent to the submission date. In addition, our results show that the allowance submissions affect the price discovery process, with the carbon spot market providing stronger price leadership in the periods before the submission date and the futures market playing the predominant informational role thereafter. Using the heterogeneous autoregressive realized volatility (HAR-RV) model, we also find a change in volatility spillovers before the submission date, particularly from the spot to the futures market. Overall, the results suggest that the April allowance submissions have significant impact on the time series dynamics of spot and futures carbon emission markets.

Keywords: Carbon allowance submission, Carbon emission markets, EU ETS, Mispricing, Price discovery, Volatility spillovers

JEL Classification: G13, G17, G18

Suggested Citation

Philip, Dennis and Shi, Yukun, Impact of Allowance Submissions in European Carbon Emission Markets (March 20, 2015). International Review of Financial Analysis, Forthcoming, Available at SSRN: or

Dennis Philip (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Mill Hill Lane
Durham, DH13LB
United Kingdom

Yukun Shi

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

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