Thesis (M.Sc.)--Victoria University of Wellington, [2008] / Includes bibliographical references.

This thesis examines the informational efficiency of the European carbon market based on the European Union Emissions Trading Scheme (EU ETS). The issue is approached from three different perspectives. I explore whether the volatility embedded in carbon options is a rational forecast of subsequently realized volatility. Then, I investigate if, and to what extent, new information about the structural and institutional set-up of the market impacts the carbon price dynamics. Lastly, I examine whether the European carbon market is relevant for the firm valuations of covered companies. First, perhaps because the market is new and derivatives’ trading on emission allowances has only started recently, carbon options have not yet been extensively studied. By using data on options traded on the European Climate Exchange, this thesis examines an aspect of market efficiency which has been previously overlooked. Market efficiency suggests that, conditional upon the accuracy of the option pricing model, implied volatility should be an unbiased and efficient forecast of future realized volatility (Campbell et al., 1997). Black (1976) implied volatility and implied volatility estimates directly surveyed from market participants are used in this thesis to study the information content of carbon options. Implied volatility is found to be highly informative and directionally accurate in forecasting future volatility. There is no evidence, however, that volatility embedded in carbon options is an unbiased and efficient forecast of future realized volatility. Instead, historical volatility-based forecasts are shown to contain incremental information to implied volatility, particularly for short-term forecasts. In addition, this thesis finds no evidence that directly surveyed implied volatility estimates perform better as a forecast of future volatility relative to Black’s (1976) estimates. Second, the market sensitivity to announcements about the organizational and institutional set-up of the EU ETS is re-examined. Despite their importance for the carbon price formation, demand-side announcements and announcements about the post-2012 framework have not yet been researched. By examining a very comprehensive and updated dataset of announcements, this thesis adds to the earlier works of Miclaus et al. (2008), Mansanet-Bataller and Pardo (2009) and Lepone et al. (2011). Market participants are found to rationally incorporate new information about the institutional and regulatory framework of the emissions trading scheme into the carbon price dynamics. However, they seem to be unable to accurately assess the implications of inter-temporal banking and borrowing on pricing futures contracts with different maturities. The impact of macroeconomic conditions on the market responsiveness is investigated by splitting the dataset into subsamples according to two alternative methods: 1) a simple split into pre-crisis and full-crisis time periods, and 2) according to a Bai-Perron structural break test. Evidence is found that in the context of economic slowdown and known allowances oversupply, the relationship between the carbon price and its fundamentals (institutional announcements, energy prices and extreme weather) breaks down. These findings are consistent with the arguments in Hintermann (2010), Keppler and Mansanet-Bataller (2010) and Koop and Tole (2011) that carbon price drivers change in response to the differing context of the individual trading periods. Third, the role of carbon performance in firm valuation is understudied. Since companies were not obliged to disclose their carbon emissions prior to the launch of the EU ETS, there exists little empirical evidence of the effect of carbon performance on market value. Earlier studies of the European carbon market have only focused on the impact of ETS compliance on the profitability and competitiveness of covered companies (e.g. Anger and Oberndorfer, 2008). There is also little research on how the newly available emissions data has altered the carbon performance of companies. This thesis addresses these gaps in the literature by examining the stock price reactions of British and German firms on the day of verified emissions release under the EU ETS over the period 2006 – 2011. An event study is conducted using a Seemingly Unrelated Regressions model to deal with the event clustering present in the dataset. Limited evidence is found that investors use information about the carbon performance of companies in their valuations. The information contained in the carbon emissions reports is shown to be somewhat more important for companies with high carbon-intensive operations. This thesis finds no conclusive evidence that the cap-and-trade programme has been able to provide regulated companies with enough incentives to de-carbonize their operations. The market does not punish companies which continue to emit carbon at increasing rates or reward companies which improve their carbon performance. In brief, the results of the thesis suggest that the market is not fully efficient yet. Inefficiently priced carbon options may allow for arbitrage trades in the market. The inability of investors to incorporate rules on inter-temporal banking and borrowing of allowances across the different trading periods leads to significant price reactions when there should be none. A recessionary economic environment and a known oversupply of emission allowances have led to a disconnect between the carbon price and its fundamental drivers. And, lastly, the signal embedded in the carbon price is not strong enough to invoke investor action and turn carbon performance into a standard component of investment analysis.

Our study examines some design alternatives for a carbon market by exploring the fledgling Alberta carbon market. We attempt to evaluate the performance of these designs on the bases of trade volume, cost efficiency and stability. To achieve this we construct an empirically-calibrated but simple agent-based model, certain aspects of which we selectively modify to incorporate various design options. We make comparisons among these options based on data simulated from the ensuing family of models. We find strong evidence that in general, market design features such as source-of-credits, the scale of the market, and pricing-mechanism are very important considerations that influence the performance of the market. In addition, we find support for the notion that the level of the price cap relative to the average cost of abatement in the market matters, and beyond a threshold, higher price caps are associated with lower levels of performance. / vii, 155 leaves ; 29 cm

Thesis (LL.M.)-University of Toronto, 2005. / Includes bibliographical references (leaves 89-93).

Thesis (LL.M.). / Written for the Institute of Air and Space Law. Title from title page of PDF (viewed 2009/06/17). Includes bibliographical references.

Thesis (doctoral)--Universität Hamburg, 2004.

Thesis (Ph. D.)--University of Washington, 2005. / Vita. Includes bibliographical references (leaves 79-84).

abstract: The United Nation's Framework Convention on Climate Change (UNFCCC) recognizes development as a priority for carbon dioxide (CO2) allocation, under its principle of "common but differentiated responsibilities". This was codified in the Kyoto Protocol, which exempt developing nations from binding emission reduction targets. Additionally, they could be the recipients of financed sustainable development projects in exchange for emission reduction credits that the developed nations could use to comply with emission targets. Due to ineffective results, post-Kyoto policy discussions indicate a transition towards mitigation commitments from major developed and developing emitters, likely supplemented by market-based mechanisms to reduce mitigation costs. Although the likelihood of achieving substantial emission reductions is increased by the new plan, there is a paucity of consideration to how an ethic of development might be advanced. Therefore, this research empirically investigates the role that CO2 plays in advancing human development (in terms of the Human Development Index or HDI) over the 1990 to 2010 time period. Based on empirical evidence, a theoretical CO2-development framework is established, which provides a basis for designing a novel policy proposal that integrates mitigation efforts with human development objectives. Empirical evidence confirms that CO2 and HDI are highly correlated, but that there are diminishing returns to HDI as per capita CO2 emissions increase. An examination of development pathways reveals that as nations develop, their trajectories generally become less coupled with CO2. Moreover, the developing countries with the greatest gains in HDI are also nations that have, or are in the process of moving toward, outward-oriented trade policies that involve increased domestic capabilities for product manufacture and export. With these findings in mind, future emission targets should reduce current emissions in developed nations and allow room for HDI growth in developing countries as well as in the least developed nations of the world. Emission trading should also be limited to nations with similar HDI levels to protect less-developed nations from unfair competition for capacity building resources. Lastly, developed countries should be incentivized to invest in joint production ventures within the LDCs to build capacity for self-reliant and sustainable development over the long-term. / Dissertation/Thesis / Ph.D. Sustainability 2013

The European Union’s climate mitigation is highly dependent on member state compliance with EU climate policy. This paper therefore investigates the effect of different factors on national compliance with the EU’s emission target of a 20 percent reduction of greenhouse gas emissions by 2020 compared to 1990. This target is further divided into additional ones, covering different sectors: a 21 percent reduction of greenhouse gases by 2020 compared to 2005 in the sectors covered by the Emissions Trading System (ETS), and differentiated targets for each member state under the Effort Sharing Decision (ESD) during the same period. Common operationalizations of compliance in quantitative research are associated with problems since the available data mostly concern policy output. This paper measures compliance in terms of outcome instead, by comparing the emission targets to the actual reductions made by the member states. The results indicate that compliance with the nation-specific targets in the ESD sector is mostly decided by how much a state is required to reduce their emissions. Regarding the ETS target, compliance appears somewhat likelier in member states where a larger share of citizens are members of an environmental organization, and a little more unlikely in states where the industry contributes economically with a larger share of GDP.

Input Output frameworks have been widely used to study the emissions of industrial sectors either in specific economies or globally but usually focus on aggregated measures under production or consumption accounting principles (PAP and CAP). This leads to a lack of transparency in terms of the structure of the emissions and provides limited information on what are the main drivers of the emissions allocated to each sector under PAP and CAP. This information gap limits the options of policy makers to interventions on whole sectors, rather than the components of their supply chains that hold the major shares of the total embodied emissions. In this thesis we argue in favour of a more disaggregated, a ‘hot-spot’, approach that provides a better understanding of the structure of emissions under both of these headline measures. We develop a methodology to identify CO2 ‘hot-spots’ in downstream and upstream supply chains, both domestic and global. The methodology is applied first to a Single Region Input Output framework for China in 2005 identifying ‘Electricity, Gas and Water Supply’ as the Chinese sector with the highest direct emissions. Examination of the sector’s domestic downstream supply chain reveals that the majority of emissions are generated to support the final demand of other domestic sectors. Of these ‘Construction’ is the main driver and it also is the Chinese sector that is found to have the largest domestic CO2 footprint, with several emissions ‘hot-spots’ in its domestic upstream supply chain. The ‘hot-spot’ methodology is then extended to a global Inter-Regional Input Output framework to consider ‘hot-spots’ in a global supply chain context. By focusing on 2009 (the year for which appropriate data are most recently available) and UK total final demand we find that Chinese ‘Electricity, Gas and Water Supply’ is the non-UK sector with the largest direct emissions driven by UK total final demand. Studying this sector’s downstream supply chain outside China reveals that a large share of the sector’s emissions is ultimately generated to support several UK-based sectors’ domestic final demand. Furthermore, the UK ‘Health and Social Work’ sector is identified as the UK sector with the second largest global footprint to support domestic final demand. We identified a number of ‘hot-spots’ in the international part of its upstream supply chain, with a key finding being its dependence on the activity and the embodied emissions in global chemicals production. Finally, the thesis goes on to demonstrate how conducting ‘hot-spot’ analysis on disaggregated regional/sub-national Input Output tables can provide more detailed local level analysis of ‘hot-spot’ findings from the Inter-Regional Input Output framework. The key finding in this respect is the importance of introducing region specific emissions data where possible, as non-region specific data can lead in incorrect estimation of the embodied emissions in any component of the supply chains of any sectors. In general, through this research project we developed a methodology that can enhance the policy makers understanding of the structure and the drivers of the emissions generated throughout the economy. This additional information on the emissions structure, when combined with familiar IO analysis on employment and value-added for example, has the potential to lead to more targeted/focused policies, which result in significant emissions reduction with the minimum employment, resources and value-added cost.