Abstract
This chapter explains the drivers for carbon prices related to institutional decisions, energy prices, and weather events. The study focuses on price changes in the EU as being the most liquid carbon asset. In this regard, the daily spot price of the EU is highlighted to demonstrate the daily changes, given the high volatility in this carbon financial market. The CO2 prices depend on several determinants. This chapter constitutes an introduction to emission trading and an overview of the regulations of carbon financial markets. First, the price changes in the EU and primary energy prices are discussed. Second, the characteristics of emissions trading are introduced in terms of spatial and temporal limits, clean dark spread, and switch price. Third, a global analysis of atmospheric variables, structural variations, the subprime crisis, and the COVID-19 crisis is presented.
TopIntroduction
Managers have recently been highly interested and engaged in issues of renewable finance from the perspective of an effective style of management. Yet, among the many studies concerned with this field (Rafay, 2022), only few works have particularly investigated the performance of the adoption of Sustainable Finance (El Amri, Boutti & Rodhain, 2020).
Since the seventies of the last century, when the scientific community has shown tremendous interest in Climate Change (CC), there has emerged a global agreement on the responsibility for producing greenhouse gas emissions (GHG)(Bunyamminu & Yakubu, 2022). As such, there is now a global consensus on taking immediate measures to help reduce these emissions to curb the scale of future consequences on climate change, bearing in mind that the global average temperature could reach higher levels ranging from 1.1 C to 6.4 C° towards the end of the 21st century.
It is deemed very decisive at this stage to bring about a significant reorientation of these methodologies and approaches in order to better face up to the challenges posed by climate change. One important aspect is that these strategies effect a reallocation of CO2 emissions- a fact, which tends to drive industrial companies to evaluate the intensity and rate of their emissions, and which also gives paramount importance to the resultant priorities (taking into consideration the recommendations for limiting carbon). In this context, the EU ETS deeply consider the hazards related to Climate Change (CC) and define the financial development prospects as regards GHG emissions (Alberola, Chevallier and Cheze, 2008); this in turn helps demonstrate existing CO2 pricing practices (EUA) through the econometric analysis of the two phases of the EU ETS. Given this, it makes sense then to state that the real objectives of EU ETS are to offer financial opportunities to manufacturing companies so that they can limit their CO2 emissions and thus help foster the adoption of technologies, which produce less carbon and develop Efficiency Energy (EE) and Renewable Energies (RE).
Of the most significant objectives that characterize management research are the attempts at describing, understanding, explaining, or predicting various phenomena pertaining to organizations. Similarly, complexity is what characterizes the world of organizations to the extent that it becomes impossible for researchers to delineate all the details of the phenomena he or she is studying. Modeling represents an effective way to represent these complex phenomena in an understandable and conceivable manner.
To better account for this statement, the objective in this chapter is to examine and study the impact of the explanatory variables (primary energy, atmospheric, fuel modification, structural movement, CO2 emissions information and the Sanitary Covid-19 crisis variables) on EUA price variable so that the researchers can detect and better explain the practices of the Responsible Management of companies involved in the European Union Emissions Trading Scheme (EU ETS).
Chevallier (2012), following the seminal work of Christiansen et al. (2005), came up with the first literature review on carbon price development, which was later developed by Lebatt and White (2007). Given the economic analysis (particularly demand and supply fundamentals), Christiansen et al. (2005) and Alberola et al. (2008) did a pioneering work in terms of laying bare economically the relationship between energy markets and the price of CO2. Taking into consideration Phase I spot and future data, these researchers have stressed that these relations vary depending on the period of time in concern and the institutional events taking place (Phase I, Phase II, Phase III). Furthermore, Bunn and Fezzi (2007) have investigated the close ties between CO2 and electricity variables such as Clean Dark, Clean Spark Spreads, and the switch price during the first phases of EU ETS. As such, Christiansen et al. (2005) have defined the following factors as decisive in the EU ETS: strategy and regulatory issues, market fundamentals, the role of fuel-switching, and weather/ production situations.
After the pioneering work by Christiansen et al. (2005), Chevallier (2012) produced the first literature reviews on the carbon price development in their respective publications. This work was further elaborated by Lebatt and White (2007).
Key Terms in this Chapter
Activities Carried Out Jointly: Pilot Stage of the joint implementation (MOC), such as it is defined in the Article 4.2 (a) of CCNUCC and which favors the implementation of activities of plans between developed countries (and their firms) as well as between country developed and developing country (and their firms). Activities carried out jointly should allow Parties in CCNUCC to acquire experience in this domain. It is not planned to validate the activities of this type during pilot stage. One still decides on nothing as for the future of the plans of activities carried out jointly and, in the manner, they can be linked to the mechanisms of Kyoto. Under the simple form of negotiable licenses, activities carried out jointly and other expressions founded on the market represent mechanisms which could greatly contribute to the draft of additional means for the preservation of total environment.
Clean Sark Spread (CSS): Expressed as € / MWh, represents difference between the selling price of electricity and its production cost, inserting the purchase of fuel (gas) and the possible purchase of the corresponding licences of program. Other expenses (functioning and maintenance and other interest charges) are excluded from counting. For the producer of electricity, one Clean positive Spark Spread means that the production of electricity is lucrative for considered period.
Kyoto Protocol (PK): The Kyoto protocol is signed in 1997 has as objective to force industrial countries to reduce their programs of six (6) Gases to Greenhouse effect (GES): CO 2 , CH 4 , N 2 O, HFC, PFC, SF6. Agreement envisages for the period 2008-2012 that greenhouse gas emissions (GES) regress of 5,2% on average in comparison with the year of 1990. The European Union (EU) and other numerous countries ratified aforementioned protocol in 2002. To come into force, this protocol must be ratified by more than 55 countries totaling more than 55% of programs GES. Further to ratification by Russia at the end of 2014, the Kyoto protocol came into force on February 16th, 2005. Several big countries did not sign PK, notably the United States of America and China. Developing countries (PED) are exempted from ciphered commitments so that their development is not called into question.
Clean Dark Spread (CDS): Expressed as € / MWh, represents difference between the selling price of electricity and its production cost, inserting the purchase of fuel (coal) and the possible purchase of the corresponding licences of program. Other expenses (functioning and maintenance and other interest charges) are excluded from counting. For the producer of electricity, one Clean positive Dark Spread means that the production of electricity is lucrative for considered period.
Price of Carbon: Commands who must be poured (in a public authority in form of tax or in license of exchange of programs) for the program 1 ton of CO 2 in the atmosphere. In models, as well as in the present Report, the price of carbon represents the social expense to avoid the program of an additional unit of Équivalent - CO 2 . In certain models the price of carbon is represented by the informal price of an additional unit of issued CO 2 , in others – by the rates of taxes on carbon or price of the license of programs. In the present Report it is also used as limit rate for the marginal expenses of depressions during the valuation of the economic possibilities of alleviation.
Carbon Dioxide (CO2): Artificial or natural Gas of origin in case it results from fossil fuels (oil, gas, coal, etc.), of biomass and changes of allocation of lands, as well as other industrial techniques. It is main gas with anthropogenic greenhouse effect and reference gas for the measure of other gases with greenhouse effect. It is a gas which occurs of course, and that is also a product diverted from the combustion of fossil fuels and from biomass, as well as of the changes of allocation of lands and other industrial processes. It is main gas with anthropogenic greenhouse effect which has an influence on the radiatif balance sheet of the Earth. Gas acting as reference for the measure of other Gases with Greenhouse effect (GES); his Potential of Worldwide Warming is equal to 1.
Unit of Discount Certified by Programs (URE) – Program Reduction Unit (ERU): Corresponds to a ton of programs in Equivalent-CO 2 reduced or trapped thanks to a plan of the Mechanism for a clean development, calculated with the aid of the Potential of worldwide warming. To reflect possibility that a plan of afforestation or reforestation is not competitive, the 9 th Conference of Parties decided to use temporary certificates for the net elimination of gases with greenhouse effect anthropogenic. See also Units of discount of programs. It is a credit carbon generated by the discount of a ton of greenhouse gas emission (GES) emanating from a plan MOC, expressed in tons CO 2 (teqCO 2 ) is equivalent.
Transfer of Programs of Carbon: Fraction of the discounts of programs in the purposeful countries/parties in the Annex B which can be compensated, in countries exempt from obligations, by an increase of programs above basic conditions. This transfer can be linked (1) to a relocation of the activities of production with strong energy intensity in regions exempt from obligations; (2) in an augmented consumption of fossil fuels in regions exempt from obligations due to fall of the international prices of oil and gas following from a reduction of the request of these forms of energy; and (3) in an evolution of incomes (and as a result of the request of energy) owed to an improvement of the terms of exchange. The transfer of programs also corresponds to the effects of the discount of the programs of GES or the plan of activities of stocking of CO 2 which can happen beyond the borders of plan and that are measurable and attributable to activity. Nevertheless, it happens that effects attributable to an activity not being part of plan, can entrained a reduction of the programs of GES. It is what they call commonly an effect of entrainment. If a (negative) transfer of programs can entrain a delivery on the discounts of proved programs, an effect of positive entrainment will not be reason there out of necessity.
Annex B (Kyoto Protocol ([PK]): The countries of the annex B are principally the same that the countries of the annex I of CCNUCC with some difference. For instance, Belarus and Turkey are not included in the annex B. These countries have objectives of discount of programs of GES. The countries of the annex B are 37 countries as follows: Germany, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Denmark, Spain, Estonia, the United States, Finland, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxembourg, Monaco, New Zealand, Norway, Netherlands, Poland, Portugal, Republic Czech, Romania, United Kingdom, Russia, Slovakia, Slovenia, Sweden, Switzerland, Ukraine.
Climatic Change (CC): Detectable and persistent Variation of climate (modifications of the average of temperatures). Climatic Changes indicate a statistically significant variation of the medium state of climate or its changeability persisting during long periods, in general during decades or more. Climatic changes can be owed to natural internal processes or to external forcings, or to changes anthropiques persistent of the composition of the atmosphere or the allocation of lands.