A note on cointegrating and vector autoregressive relationships between CO2 allowances spot and futures prices
Chevallier, Julien (2010), A note on cointegrating and vector autoregressive relationships between CO2 allowances spot and futures prices, Economics Bulletin, 30, 2, p. 1564-1584
TypeArticle accepté pour publication ou publié
Journal nameEconomics Bulletin
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Abstract (EN)This article investigates the cointegrating and vector autoregressive relationships in CO2 allowances spot and futures prices, valid for compliance under the EU Emissions Trading Scheme (EU ETS). Our empirical analysis yields to reject a cointegrating relationship between CO2 spot and futures prices, when accounting for the presence of a structural break in February 2009 (possibly due to the delayed impact of the ``credit crunch'' crisis). Then, a vector autoregression analysis (complemented by impulse response functions) indicates that futures prices are relevant for price formation in the spot market (while the opposite is not true). Overall, this analysis appears useful to making informed hedging decisions in the banking and finance industries, while allowing regulated utilities to relate futures prices to better forecasts of spot prices.
Subjects / KeywordsEuropean Union Emissions Trading Scheme; CO2 price
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