Abstract
Prohibiting the intertemporal trading of emission allowances induces positive risk premia in futures prices when the trading of the contracts and their expiry take place in time periods separated by this trading ban. In Phase I of the EU Emissions Trading Scheme (EU ETS) these were in the order of about 28% of the futures price on average, depending on the contract's expiry in Phase II. Environmental policy makers should avoid such restrictions as they result in increased hedging costs for polluters that are, since emission allowances represent opportunity costs, potentially borne by consumers.
Original language | English |
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Pages (from-to) | 88–91 |
Number of pages | 4 |
Journal | Energy Policy |
Volume | 115 |
Early online date | 9 Jan 2018 |
DOIs | |
Publication status | Published - Apr 2018 |
Keywords
- Emission allowances
- Intertemporal trading
- Carbon futures
- Risk premia
- EU ETS