Forecasting the CO2 certificate price risk
Henry Dannenberg, Wilfried Ehrenfeld
IWH Discussion Papers,
No. 5,
2008
Abstract
Modeling the price risk of CO2 certificates is one important aspect of integral corporate risk management related to emissions trading. The paper presents a risk model which may be the basis for evaluating the risk of emission certificate prices. We assume that the certificate price is determined by the expected marginal CO2 abatement costs prevailing at the current trade period and stochastically fluctuates around the respective level as returned from the mean reversion process. Due to uncertainties about future environmental states we suppose that within one trade period, erratic changes in the expected marginal abatement costs may occur leading to shifts in the price level. The aim of the work is to model the erratic changes of the expected reversion level and to estimate the parameters of the mean reversion process.
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The European Emissions Trading System: What Have We Learned so Far?
Wilfried Ehrenfeld
Wirtschaft im Wandel,
No. 3,
2008
Abstract
The IWH occupies with the consequences of the emission trading for the effected companies. The first period of the European Emission Trading System was conceived as a learning phase during which two problems occurred: The first and most obvious one was the surplus of certificates. The incentives to invest in the mitigation of CO2 can therefore be considered to be low. The second problem resulted from the allocation which was entirely for free. While electricity customers had to bear the main financial burden, electricity producers profited as the certificate-prices were obviously added to the electricity-prices as opportunity costs. The analysis comes to the conclusion that it was right to shorten the amount of certificates on the EU-level for the second trade period and to establish the partly sales or auctioning of certificates in German legislation. Furthermore, the simplification of the allocation method in Germany can be considered to be a progress.
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