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<p>This study investigates the key factors influencing European Union Allowances (EUA) price volatility, with a particular focus on the sharp increase in prices after 2021. EUA is traded in the European Union Emissions Trading System (EU-ETS), which plays a central role in European climate policy. Understanding price dynamics is therefore critical for both market participants and policymakers. Using a stochastic volatility (SV) model, the analysis incorporates two categories of explanatory variables: market anomalies such as leverage effect and holiday effect and market structure, including trading activity and market depth. In addition, it evaluates the impacts of three recent macro-financial developments: (1) Environmental, Social and Governance (ESG) investment, (2) the COVID-19 pandemic, and (3) monetary easing by the European Central Bank (ECB). The results show that market anomalies significantly contribute to volatility. While ESG investment has a limited effect, both the pandemic and monetary easing have had substantial impacts on EUA price volatility.</p>

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EU carbon price volatility from the COVID-19 pandemic

  • 期刊论文

  • 发表日期：

    2025年11月5日

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  • Amane Saito,
  • Hisashi Tanizaki

摘要

This study investigates the key factors influencing European Union Allowances (EUA) price volatility, with a particular focus on the sharp increase in prices after 2021. EUA is traded in the European Union Emissions Trading System (EU-ETS), which plays a central role in European climate policy. Understanding price dynamics is therefore critical for both market participants and policymakers. Using a stochastic volatility (SV) model, the analysis incorporates two categories of explanatory variables: market anomalies such as leverage effect and holiday effect and market structure, including trading activity and market depth. In addition, it evaluates the impacts of three recent macro-financial developments: (1) Environmental, Social and Governance (ESG) investment, (2) the COVID-19 pandemic, and (3) monetary easing by the European Central Bank (ECB). The results show that market anomalies significantly contribute to volatility. While ESG investment has a limited effect, both the pandemic and monetary easing have had substantial impacts on EUA price volatility.