Climate uncertainty and carbon emissions prices: The relative roles of transition and physical climate risks?
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Date
2022
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier Science Sa
Access Rights
info:eu-repo/semantics/closedAccess
Abstract
This study examines the role of climate uncertainty on carbon emissions price dynamics using novel measures of uncertainty that capture transitional and physical climate risks. Applying a multivariate stochastic volatility model to daily European Union Allowance prices, we show that climate uncertainty indeed serves as a significant driver of price fluctuations in emissions prices with physical climate risks associated with uncertainty surrounding natural hazards playing a more dominant role over policy uncertainty in recent years. While our findings highlight the growing role of public concern over global warming and climate hazards than policy aspects as a driver of pricing dynamics in the emissions market, our findings present an interesting opening for hedging strategies towards attaining decarbonization goals in investment positions.
Description
Keywords
Climate Risk, Carbon Prices, Stochastic Volatility
Journal or Series
Economics Letters
WoS Q Value
Q3
Scopus Q Value
Q2
Volume
217
