Derivative Instruments in the EU Emissions Trading Scheme - An Early Market Perspective

Energy & Environment, Vol. 19, No. 5, pp. 635-655, September 2008

Posted: 19 Feb 2006 Last revised: 27 Oct 2008

See all articles by Michael Wolfgang Wagner

Michael Wolfgang Wagner

University of Karlsruhe (TH)

Marliese Uhrig-Homburg

Karlsruhe Institute of Technology (KIT) - Institute for Finance

Date Written: November 1, 2007

Abstract

The advent of the EU Emissions Trading Scheme (EU ETS) introduced CO2 emission allowances as a new tradable asset. Market participants now face the question how to manage the risks associated with these emission certificates. In this paper we discuss the market environment in the EU ETS and present the results and implications of an expert survey, which gives a perspective on the development of derivative markets in the EU ETS. Although the EU ETS exhibits some differences, in that it is not only driven by fundamentals but also strongly by regulatory and political factors, we find that the EU ETS develops in a similar fashion to other financial and commodity markets. Moreover, the expert survey gives a clear indication that there are realistic chances for the long-term success of derivatives, not only for futures and forwards but also - to a lesser extent - for more asymmetric, option-like instruments.

Keywords: CO2 emission certificates, market environment, CO2 derivatives, expert survey

JEL Classification: Q28, G19

Suggested Citation

Wagner, Michael Wolfgang and Uhrig-Homburg, Marliese, Derivative Instruments in the EU Emissions Trading Scheme - An Early Market Perspective (November 1, 2007). Energy & Environment, Vol. 19, No. 5, pp. 635-655, September 2008, Available at SSRN: https://ssrn.com/abstract=882792

Michael Wolfgang Wagner (Contact Author)

University of Karlsruhe (TH) ( email )

Postbox
76128 Karlsruhe, DE 76128
Germany

Marliese Uhrig-Homburg

Karlsruhe Institute of Technology (KIT) - Institute for Finance ( email )

P.O. Box 6980
D-76049 Karlsruhe, DE
Germany
+49 721 6084 8183 (Phone)
+49 721 6084 8190 (Fax)

HOME PAGE: http://derivate.fbv.kit.edu/english/index.php

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