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Fatemeh (MARJAN) Nazifi 34 th IAEE’s International Conference June 19-23, 2011 Stockholm, Sweden PowerPoint PPT Presentation


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Fatemeh (MARJAN) Nazifi 34 th IAEE’s International Conference June 19-23, 2011 Stockholm, Sweden. Outline :. Introduction Econometric models Empirical findings Conclusions. Motivation:. The theoretical point of view:

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Fatemeh (MARJAN) Nazifi 34 th IAEE’s International Conference June 19-23, 2011 Stockholm, Sweden

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Fatemeh marjan nazifi 34 th iaee s international conference june 19 23 2011 stockholm sweden

Fatemeh(MARJAN) Nazifi

34th IAEE’s International Conference

June 19-23, 2011

Stockholm, Sweden


Outline

Outline:

  • Introduction

  • Econometric models

  • Empirical findings

  • Conclusions


Motivation

Motivation:

The theoretical point of view:

The fact that fungible carbon products have different prices provides arbitrage opportunities. Although these opportunities should ensure the equality of prices, EUA prices exceed CER prices.

Purpose of the paper:

To analyse the process that describes the dynamic evolution of the price spread


Fatemeh marjan nazifi 34 th iaee s international conference june 19 23 2011 stockholm sweden

Questions addressed:

  • Do EUA and CER prices converge over time?

  • Which factors may impact on the dynamic behaviour of the price spread over the period investigated?


Fatemeh marjan nazifi 34 th iaee s international conference june 19 23 2011 stockholm sweden

Significance of the study:

  • Focus of previous studies was mainly on economic impacts of the CDM, based on simulation analyses (Klepper & Peterson, 2006; Criqui and Kitous, 2003; Anger et al., 2007, Anger, 2008; Nazifi, 2009; Chevallier, 2010)

  • A few studies focused on the price spread between the EUA and the CER (Mizrach, 2009; Mansanet-Bataller et al. 2011; Barrieu and Fehr, 2011)

  • In contrast to previous works, this study assesses the strength of price convergence, and models the price spread by taking into account the possibility of a dynamic structural change through employing a time-varying parameter analysis


  • Figure 1 the price spread between eua and cer prices

    Figure 1: The price spreadbetween EUA and CER prices


    Methods of investigation

    Methods of investigation:

    • Time-series econometric techniques

      • Unit -root tests

      • Cointegration tests

      • Convergence tests

      • The Kalman filter analysis


    Fatemeh marjan nazifi 34 th iaee s international conference june 19 23 2011 stockholm sweden

    Empirical findings:

    Table 1: Cointegration tests


    Fatemeh marjan nazifi 34 th iaee s international conference june 19 23 2011 stockholm sweden

    Empirical findings:


    Fatemeh marjan nazifi 34 th iaee s international conference june 19 23 2011 stockholm sweden

    The Kalman Filter:

    • Deals with non-stationarity and non-cointegration in the data (Bomhoff, 1995; King and Cuc, 1996)

    • Takes into consideration the possibility of a dynamic structural change in the prices series

    • Examines the convergence path of the prices series


    Fatemeh marjan nazifi 34 th iaee s international conference june 19 23 2011 stockholm sweden

    Empirical Model:

    Testing the Law of One Price

    (3)


    Fatemeh marjan nazifi 34 th iaee s international conference june 19 23 2011 stockholm sweden

    Figure 2: Time-varying path of βt


    Fatemeh marjan nazifi 34 th iaee s international conference june 19 23 2011 stockholm sweden

    Table 2: Kalman Filter estimations


    Fatemeh marjan nazifi 34 th iaee s international conference june 19 23 2011 stockholm sweden

    Research results:

    • Considering the results of all three time series techniques as a whole, no statistical evidence could be found that EUA and CER prices converged.

    • Factors underlying the price spread are mainly:

      • Different market frameworks,

      • A cap on the amounts of CERs, and

      • Uncertainty associated with CERs ( uncertainty with respect to the default risk of financial institutions; concerns regarding the long-term future of the CDM; and the lack of clarity regarding the use of CERs),

      • Institutional events and regulatory news regarding both EUAs and CERs.


    Fatemeh marjan nazifi 34 th iaee s international conference june 19 23 2011 stockholm sweden

    Conclusion:

    • Improving the competitive conditions of carbon markets, and increasing the substitutability of CERs for EUAs may develop the integration of the EU ETS and the secondary CER markets.

      Potential improvements may include providing greater:

    • availability of CERs,

    • clarity and simplicity of the EU’s rules regarding the use of CER,

    • harmonization in regulatory frameworks, and

    • coordination between the EU ETS and the CDM


    Thank you marjan department of economics macquarie university sydney australia

    Thank you!MarjanDepartment of EconomicsMacquarie University, SydneyAustralia

    Contact: [email protected]


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