Impacts of External Factors on EUA Price Volatility in EU Emission Trading System   Xingrong Chen and Jin Zhong   2024/07/20

Abstract

Responding to the Kyoto Protocol and addressing increasingly severe carbon emission issues, European Union (EU) Emission Trading System (ETS), one of the most effective mechanisms makes significant contributions to the carbon neutral obligations. European Union Allowance (EUA) price which is regarded as a powerful instrument maps the efficiency and effectiveness of decarbonization. EUA prices fluctuate due to several reasons, directly affecting the price prediction and investment decisions. This paper explores the correlation between monthly average volatility of EUA spot prices and external political and economic uncertainties. Monthly standard deviation (SD) based on daily log returns of EUA spot prices is calculated to estimate monthly historical volatility. The time series analysis like Simple Moving Average (SMA), and data analysis like frequency distribution histogram, are combined to measure and quantify historical volatility tendency of EUA prices. In the end, the regular patterns are concluded regarding external factors and volatility during the whole evolution phases of EU ETS.

Authors and affiliations

Xingrong Chen and Jin Zhong

Department of Electrical and Electronic Engineering. The University of Hong Kong. Pokfulam Road, Hong Kong, China

Key words

Monthly average volatility, EUA spot price, external political and economic uncertainties, time series analysis, data analysis.

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