Details
| Original language | English |
|---|---|
| Article number | 100070 |
| Journal | Journal of Climate Finance |
| Volume | 12 |
| Early online date | 21 Jul 2025 |
| Publication status | Published - Sept 2025 |
Abstract
In this paper, we provide new evidence on the determinants of EU emission allowance prices by analyzing the most recent trading periods, i.e. phases III and IV. We consider energy (oil, natural gas, coal) and electricity prices using various modeling approaches. We find that none of the approaches that have been proposed in the early literature on carbon pricing is suitable to explain the allowance price in the most recent sample. Among the variables, crude oil and electricity appear to be the most important market fundamentals, as they explain the largest share of variance. However, the explanatory power of all variables diminishes over time. We find that market fundamentals are able to explain up to 12% of the variation of EU emission allowance prices in phase III. However, the explanatory power drops to below 1% in phase IV. We conjecture that as the EU Emission Trading Scheme matures and the emissions cap tightens, the economic mechanics have fundamentally changed.
Keywords
- Carbon price, EU ETS, EUA price fundamentals
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Economics, Econometrics and Finance(all)
- Finance
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In: Journal of Climate Finance, Vol. 12, 100070, 09.2025.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - What determines the price of carbon? New evidence from phase III and IV of the EU ETS
AU - Dittmann, Bente
AU - Lauter, Tobias
AU - Prokopczuk, Marcel
AU - Sibbertsen, Philipp
N1 - Publisher Copyright: © 2025 The Authors
PY - 2025/9
Y1 - 2025/9
N2 - In this paper, we provide new evidence on the determinants of EU emission allowance prices by analyzing the most recent trading periods, i.e. phases III and IV. We consider energy (oil, natural gas, coal) and electricity prices using various modeling approaches. We find that none of the approaches that have been proposed in the early literature on carbon pricing is suitable to explain the allowance price in the most recent sample. Among the variables, crude oil and electricity appear to be the most important market fundamentals, as they explain the largest share of variance. However, the explanatory power of all variables diminishes over time. We find that market fundamentals are able to explain up to 12% of the variation of EU emission allowance prices in phase III. However, the explanatory power drops to below 1% in phase IV. We conjecture that as the EU Emission Trading Scheme matures and the emissions cap tightens, the economic mechanics have fundamentally changed.
AB - In this paper, we provide new evidence on the determinants of EU emission allowance prices by analyzing the most recent trading periods, i.e. phases III and IV. We consider energy (oil, natural gas, coal) and electricity prices using various modeling approaches. We find that none of the approaches that have been proposed in the early literature on carbon pricing is suitable to explain the allowance price in the most recent sample. Among the variables, crude oil and electricity appear to be the most important market fundamentals, as they explain the largest share of variance. However, the explanatory power of all variables diminishes over time. We find that market fundamentals are able to explain up to 12% of the variation of EU emission allowance prices in phase III. However, the explanatory power drops to below 1% in phase IV. We conjecture that as the EU Emission Trading Scheme matures and the emissions cap tightens, the economic mechanics have fundamentally changed.
KW - Carbon price
KW - EU ETS
KW - EUA price fundamentals
UR - http://www.scopus.com/inward/record.url?scp=105012316906&partnerID=8YFLogxK
U2 - 10.1016/j.jclimf.2025.100070
DO - 10.1016/j.jclimf.2025.100070
M3 - Article
VL - 12
JO - Journal of Climate Finance
JF - Journal of Climate Finance
SN - 2949-7280
M1 - 100070
ER -