Carbon Financial Market

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.