Since the 1990s, advocates of policy to prevent catastrophic climate change have been divided over the appropriate economic instruments to curb CO2 emissions-carbon taxes or schemes of emission trading. Barack Obama claimed that policies implemented during his presidency set in motion irreversible trends toward a clean-energy economy, with the years 2008-2015 given as evidence of decoupling between CO2 emissions and economic growth. This is despite California being the only state in the USA that has implemented a specific policy to curb emissions, a cap-and-trade scheme in place since 2013. To assess Obama's claims and the effectiveness of policies to reduce CO2 emissions, we analyze national and state-level data from the USA over the period 1990-2015. We find: (a) annual changes in emissions strongly correlated with the growth conditions of the economy; (b) no evidence for decoupling; and (c) a trajectory of CO2 emissions in California which does not at all support the claim that the cap-and-trade system implemented there has reduced CO2 emissions. / Series: SRE - Discussion Papers

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.

In a contemporary with intense concerns towards global warming, this thesis has investigated the matter of how trade regulation policies, responding to climate change, are rhetorically motivated and discussed within international forums. Particularly by looking at the European Union’s Carbon Border Adjustment Mechanism and by critically dissecting how the EU has been navigating its conflicting position; on one hand, as the self-appointed leader of progressive climate actions, on the other hand, as the guardian of the common economic interests of the Union – and on a third stand, as a prominent member of the World Trade Organization, with binding obligations to not violate its rules.  On the basis of a theoretically post-colonial perspective, this paper has explored the power-relational tensions operating within discussions, practically by investigating the narrating presence of post-colonial tendencies. The study has additionally been interested in contributing to wider discussions on ideas and processes influencing the evolvement of international trade regulations on climate, and similarly, to constructively nuance the leadership role shouldered by the EU. This has been completed through an operationalization of three theoretical concepts; Universalism, Otherness/Self and Hegemony - and by implementing a mixed-method approach, bringing forward both qualitative and quantitative results answering up to the question on how the EU’s motivation in favour of the CBAM has been carried out rhetorically – both within internal discussions and during official WTO meetings.  Based on two data-cases reflecting the nature of EU’s rhetoric within the two forums, and in relation to the three theoretical concepts - intentionally developed to detect different post-colonial features - this study resulted in interesting outcomes demonstrating distinct rhetorical patterns. While in WTO contexts, emphases were put on asserting the EU as the natural leader and the CBAM as the most ambitious and effective environmental tool – internal discussions revealed contrastingly higher emphases on motivating the CBAM in terms of being a convenient regulation, serving the climate objective - most importantly - without interfering, nor jeopardizing the sovereignty of EU’s economic position. In fact, comparing between the two data-cases, the frequency of code-words motivating economic interests were 178% higher in internal EU discussions. It has therefore been verified that EU’s internal discussions on how to tackle global warming are strongly interlinked with reasonings around economic matters of interests. On the contrary, this is exceedingly toned down during official WTO-meetings.

Copper processing plants involved in smelting, electro-refining and electro-winning are heat-intensive undertakings that provide extensive challenges for attainment of high energy efficiency. Literature has shown that most of these plants, especially smelters, operate at low overall energy efficiency due to the seemingly complex energy scenario where heat and electricity as forms of energy are treated distinctively from each other. Many copper processing plants have not yet explored both available and emerging waste heat recovery technologies hence remain operating at lower energy efficiencies. In the copper processing plants under study in particular the Nchanga tailings leach plant (TLP), plant operators hinted that some of the processes that ought to operate in heated environments operate at ambient temperatures because of lack of a heating mechanism. The project discusses possible heating mechanisms from available local resources and applicable technologies. As the competing options for providing the required heat at the Nchanga TLP present different carbon emission scenarios, the carbon emissions associated to the recommended installations shall be quantified against a suitable baseline. Flue gas waste heat from the nearby Nchanga smelter has been taken as the available local energy source on which the applicable heating scenarios at TLP are analyzed. The project analyzed waste heat scenarios for three furnaces at Nchanga smelter where it has been established that flue gases from the furnaces contain 37.31 MW of waste heat. Analysis for channeling the waste heat into heat recovery steam generators gave the steam turbine power generation potential of 7.06 MW. The project also demonstrated how energy efficiency undertakings can be used as a driver for carbon emission reduction measures and for participation to the available carbon trading mechanisms such as CDM. Selection of suitable baseline scenarios revealed a lot of potential for carbon finance undertakings in the three case study plants. At the Nchanga smelter, the 7.06 MW power generation capacity has an associated potential of 61,820 tCO2/year emission reductions that can be monetized through the available carbon trading markets. The research established that Nchanga TLP has a heating demand of 10.87MW. If this heating demand was to be met by using the smelter waste heat, the undertaking can be taken as CDM activity or other carbon trading platform with an associated potential of 95,183 tCO2/year.