International Finance and Financial Management
Financial Market Instruments in Environmental Policy
Markets trading emissions rights at times feature adventurous price movements. This has, for example, been observable in the past for NOx emissions rights as traded on the US Regional Clean Air Incentives Market (RECLAIM). In part caused by the energy crisis in California in fall 2000 the price index swerved within a matter of months wayward from a few thousand to over 90.000 Dollars. A specific role among the various causes for the extreme volatility of emissions prices may be accounted to political or regulatory influences in particular whenever they affect directly the emissions markets institutional design. This is applicable both to the still young Carbon Dioxide markets within the EU as well as the global market post Kyoto. In the wake of European emissions trading more than 10.000 firms became owners of these new assets. They are forced, accordingly, to cope with the associated challenges. In many cases the need exists to be sheltered from violent price ruptures. The projects primary focus was to examine in what respect the markets for emissions certificates differ from other organised markets (stocks, financial derivatives, electricity, etc.), which role may be assumed in this context by financial market instruments (e. g. risk management), and if respectively how they could be put to use in sensibly enhancing emissions markets. In doing so, the study was to concentrate on emissions certificates for CO2, NOx and possibly SO2 as well. The project was a co-operative of the Financial Markets and Environmental Economics departments.
Duration: 01.07.2005 - 30.04.2006