The Impact of Policy Announcements by the European Commission on Price Formation in the EU ETS

Auteurs

Angela Torres Corona, Jan Horst Keppler

Astract

This paper explores the effect of climate and energy regulatory announcements by the European Commission (EC) on carbon certificate returns. We use an event study to examine the
impact of 94 announcements under 13 categories, giving particular interest to announcements about the Market Stability Reserve (MSR) and EU Green Deal revisions. We show
that during the period studied, 33% of the total EC announcements have significant Cumulative Abnormal Returns (CARs); out of these, 60% have significant CARs after the event
compared with 30% before the event. Additionally, announcements regarding the MSR resulted in non-significant CARs. We attribute these results to the progressive adjustment to
balance this oversupply, which continues to experience a surplus. The EU Green Deal announcements showed price relevance with significant CARs and Abnormal Returns (ARs).