Title: Links between spot and futures allowances: ECX and EEX markets comparison

Authors: Carlos Pinho; Mara Madaleno

Addresses: Department of Economics, Management and Industrial Engineering (DEGEI), Unit Research in Governance, Competitiveness and Public Politics (GOVCOPP), Universidade de Aveiro, Campus Universitário de Santiago, 3810-193 Aveiro, Portugal. ' Department of Economics, Management and Industrial Engineering (DEGEI), Unit Research in Governance, Competitiveness and Public Politics (GOVCOPP), Universidade de Aveiro, Campus Universitário de Santiago, 3810-193 Aveiro, Portugal

Abstract: This paper discusses the relation of spot and futures CO₂ allowances, used to model and test forward premium and convenience yield (CY) concepts during 2005-2011. We analyse allowances futures from an ex-post perspective and find positive forward premia for both Phase I and Phase II and for different European markets: European Energy Exchange (EEX) and European Climate Exchange (ECX), indicating the prevalence of contango, for the majority of the futures contracts under analysis. When testing for factors influencing both the forward premium and the convenience yield we see a negative influence of spot CO₂ price volatility in EEX, but for ECX results are dubious with respect to the negative influence of volatility over the convenience yield. Results indicate that the convenience yield positively influences the forward premium, while being positively influenced by the spot, being results independent of the volatility forecast used and important for risk management purposes.

Keywords: CO2 emission allowances; EU ETS; convenience yield; risk premium; carbon emissions; carbon dioxide; European Energy Exchange; EEX; European Climate Exchange; ECX; price volatility; risk management; carbon trading; emissions trading.

DOI: 10.1504/IJGEI.2011.045025

International Journal of Global Energy Issues, 2011 Vol.35 No.2/3/4, pp.101 - 131

Published online: 26 Mar 2015 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article