Results of a new article point to a new pricing regime in the second phase of the EU ETS in 2007/2008: Energy prices have become more important for carbon prices. These linkages indicate that the EU ETS increasingly sets the right incentives to market participants for a costefficient reduction of emissions.
These are some of the key findings of Nicolas Koch, researcher at the MCC working group Resources and International Trade, published in the American Economic Journal “Applied Economics”. The article entitled „Dynamic linkages among carbon, energy and financial markets: a smooth transition approach” explores the correlation between carbon, energy and financial prices.
The findings bear practical implications for risk management of companies and specialized traders: Optimal hedging strategies have changed as a result of correlation shifts and efficient hedging positions for asset holdings should be based on time varying correlation estimates.
You can access the full article here.
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