Regulatory Stringency in Issuing Certified Emission Reductions and Price Effects in Secondary MarketsFei Yu, Patrick Grady () and Robert Knipp MPRA Paper from University Library of Munich, Germany Abstract: The Kyoto Clean Development Mechanism (CDM) is the first “global” and largest carbon offset instrument, supplementing national or regional cap and trade systems such as the European Union’s Emission Trading Scheme (EU ETS). This paper draws on weekly IDEACarbon survey data from 2008 to 2010 to empirically examine how investor’s perception of the CDM regulatory and administrative framework affects the price of CERs in secondary markets (denoted as sCER) and the price spread with EUAs. Results from cointegration analysis and GARCH modeling indicate that the perception of investors about the relative stringency and efficiency of this framework is a significant determinant of the sCER price and the EUA-sCER price spread. An increase in perceived stringency causes significant increases in sCER prices and a substantial narrowing of the EUA/sCER price spread (and vise versa). The analysis also shows that the EU ETS market was instable over the period examined, with a structural shift occurring at the end of 2008 likely due to the 2008 financial crisis. Keywords: emission permits; EUA-sCER Spread; spot and future price dynamics; carbon derivatives (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:50184 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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