Auctioning C02 Emission Allowances in Europe. A Time Series Analysis of Equilibrium Prices
22 Pages Posted: 29 Jul 2020
Date Written: July 27, 2020
The purpose of this paper is to offer an analysis of the price behavior of Phase III (2013–2020) EU- ETS emission allowances of CO2, by focusing on the dynamics of daily auction equilibrium prices and on the changes of the volatility of the underlying stochastic process. The paper initially investigates the characteristics of equilibrium prices as they result from auction rules and bidders' behavior and uses them as a theoretical basis of the statistical hypothesis–common to the empirical literature active in this field– of a changing conditional variance of prices. Then, different versions of a GARCH model are employed to estimate both mean and variance equations of price dynamics and to evaluate what factors affect price volatility, recorded excess supply, and bidders’ surplus. Brief policy considerations are also offered.
Keywords: EU-ETS emission auctions; Equilibrium prices volatility; GARCH
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