Carbon Management is a strategic priority and organizations need to
forecast returns and volatility of carbon for that Volatility is synonymous with risk
and so an understanding of volatility in EUA market is important for making
investment decisions. Large changes in volatility of EUA market are capable of
giving adverse signals to risk averse investors The price of EUA understandably,
moves together with prices of crude oil, coal and natural gas Using EUA daily
returns from 2005 to 2015 (covering all three phases of EU ETS and EUA Continuous
Series), we investigate volatility co-movement between the EUA market
and the energy markets i.e. brent (crude oil) coal and natural gas markets We
employ Multivariate GARCH (BEKK-MGARCH) model and use data of European
Climate Exchange Dec 2007, Dec 2012, Dec 2015 expiry and the Continuous Dec
2015 expiry EUA future contracts. The empirical results indicate that there is a high
degree of volatility co-movement between EUA market and the markets of brent,
coal and natural gas Results support small but significant volatility spillover from
energy markets into EUA markets. At a substantive level, studies on volatility comovement
and spillover provide useful and actionable information for risk analysis

• Volatility spillover of energy markets into EUA markets under EU ETS: a multi-phase study