A Study on the Law of Cyclical Fluctuation of Carbon Price—Empirical Evidence from EU ETS

Hanfeng  Liao; Xing  Yang

doi:10.4236/lce.2018.94007

Xing Yang^1,2, Hanfeng Liao¹

Abstract: Based on the trading data of the Bluenext and the European Climate Exchange (ECX), this paper analyzes the cyclic price fluctuations of the EU carbon emission rights by means of the maximum entropy spectrum and wavelet variance. The results show that: 1) there are obvious cyclical price fluctuations in the EU carbon trading market, with the longest cycle being 33 months and the shortest 5.7; 2) researches on the factors that affect the cyclical price fluctuations of carbon emission rights manifest that power prices (POWER) exert the greatest implication on the prices of carbon emission rights, followed by coal prices (COAL). For every 1% change in POWER, the price of carbon emission rights changes 10.95% towards the same direction. For every 1% change in COAL, the price of carbon emissions changes 9.28% towards the opposite; 3) research based on variance decomposition demonstrates that electricity prices contribute the most to the changes of the price of carbon emissions, and the variance contribution rate is 13% at a lag cycle of 30 days.

Keywords: Price of Carbon Emission Rights, Cyclical Fluctuation, Maximum Entropy Spectrum, Wavelet Variance, Influencing Factors

Cite this paper: Yang, X. and Liao, H. (2018) A Study on the Law of Cyclical Fluctuation of Carbon Price—Empirical Evidence from EU ETS. Low Carbon Economy, 9, 81-100. doi: 10.4236/lce.2018.94007.

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