Carbon Portfolio Management

Afonin, A., Bredin, D., Muckley, C. B. & Nitzsche, D. (2014). Carbon Portfolio Management. SSRN, doi: 10.2139/ssrn.2507725

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The aim of the European Union's Emissions Trading Scheme (ETS) is that by 2020,emissions from sectors covered by the EU ETS will be 21% lower than in 2005. In addition to large CO2 emitting companies covered by the scheme, other participants have entered the market with a view to using emission allowances for the diversi cation of their investment portfolios. The performance of this asset as a stand alone investment, as well as its portfolio diversi cation implications will be investigated in this paper. Our results indicate that the market views Phase 1, Phase 2 and Phase 3 EUA futures as unattractive as stand alone investments. In a portfolio context, in Phase 1, once the short-selling option is added, there are considerable portfolio bene ts. However, our results indicate that these bene ts only existed brie y during the pilot stage of the EU ETS. There is no evidence to suggest portfolio diversi cation bene ts exist for Phase 2 or the early stages of Phase 3.

Item Type: Article
Additional Information: Available at SSRN: or
Divisions: Cass Business School > Faculty of Finance

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