Event Information
The next EEU seminar will be held on Monday the 27th of April at 12:10 – 13:00 in B44.
The seminar will be held by Samson Mukanjari who will present on the topic of: Speculation, Hedging, and Price Dynamics in the EU Carbon Market.
Samson Mukanjari is a senior lecturer in environmental and natural resource economics at Lund University whose research focuses on international climate policy, investor responses to climate policy shocks, and the valuation and management of natural resources.
When: Monday, April 27th at 12:10-13:00.
Where: B44
Speaker: Samson Mukanjari
Online: Zoom
Summary: The sharp rise in European Union Allowance (EUA) prices from 2021 onward, coupled with increased price volatility, gave rise to concerns that these developments were driven by excessive speculation in the Emissions Trading System (ETS). This paper uses data on EUA futures prices and trader positions to examine hedging, speculation, price dynamics, and volatility in the EU ETS. The evidence shows clear market segmentation: commercial undertakings and compliance entities hold most risk-reducing positions, while financial actors dominate non-risk-reducing positions, especially on the short side. Working’s T index rises over the sample and is positively correlated with EUA prices, indicating growing speculative participation relative to hedging demand. However, Granger-causality tests provide little evidence that price changes broadly drive changes in net positions, or that position changes broadly predict price changes. There is also no evidence that non-risk-reducing net positions predict volatility. Instead, volatility is followed by adjustments in risk-reducing net positions, particularly among compliance entities and investment firms or credit institutions. Overall, the results do not support the view that speculators broadly drive EUA prices.