Ozturk, Serda SelinDemirer, RizaGupta, Rangan2024-07-182024-07-1820220165-17651873-7374https://doi.org/10.1016/j.econlet.2022.110687https://hdl.handle.net/11411/7332This 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.eninfo:eu-repo/semantics/closedAccessClimate RiskCarbon PricesStochastic VolatilityArticle2-s2.0-8513341008210.1016/j.econlet.2022.110687Q2217Q3WOS:000828173600002