Research On Market Risks Of EU Emissions Trading System

The extreme climate brought about by climate change has brought irreversible negative effects to human society.Global politics,economics,and other fields have suffered greatly.Many countries have made their determination to respond to climate change,actively formulate policies and measures to respond to it,and actively participate in international emission reduction organizations.In 2005,the European Union innovated and established the EUcarbon market-the European Union Emissions Trading System(EU ETS).With the first development of EU ETS,EU ETS has been in an international leadership position and has become the world’s largest,most mature and most successful carbon market.With the development of EU ETS,carbon finance appears and develops.At present,all products traded in EU ETS are carbon financial products,most of which are carbon futures and spot.Carbon financial products have financial attributes,EU ETS gradually has many properties of financial market,and market risk appears.After consulting a lot of literature,this paper defines market risk as the possibility of investors’ loss caused by the decrease of product value due to negative price fluctuation.Therefore,the price fluctuation of EU ETS is an index to measure the market risk.So the price sequence of carbon futures and spot of EU ETS is used in the empirical part.The volatility of the return series obtained from the first order logarithmic difference price series is positively correlated with the price volatility.The volatility characteristics of this series can fully describe the volatility characteristics of the price series,so as to describe the characteristics of market risk.In this paper,the GARCH model that obeys the generalized error distribution(GED)is used to estimate the parameters,and the coefficients of the EGARCH and TARCH models are estimated to describe the fluctuation characteristics of the sequence.At the same time,by judging the significance of the ARCH-M model coefficients,it can be judged whether investors have the requirement of "high risk and high return".In addition,this article calculates the value at risk(Va R value)based on the GARCH model,and quantifies the size of the market risk based on the average value of the Va R value.Through the GARCH-Va R model,the following empirical results are obtained:(1)Historical information and historical conditional variance will affect the current conditional variance;(2)Carbon futures have greater market risk than carbon spot;(3)The farther the expiration date,the greater the market risk faced by carbon futures,and the market risk faced by future carbon futures will continue to expand.According to the empirical results,it can be seen that due to incomplete tracking of market information and long expiration dates will bring market risks to EU ETS.EU ETS has implemented a large number of control measures against its market risks.Obvious positive results have been obtained.China enters the international carbon market through CDM.At present,China’s carbon market is still in its infancy.The national carbon market has a high degree of dispersion and high market risks.It has not yet formed a unified national carbon market system and has not implemented unified risk control measures.The EU ETS’s market risk control measures have been mature,and China can learn from its measures and use them to control my country’s carbon market risks.This paper analyzes the development status of China’s carbon market,and proposes the following recommendations based on the EU ETS control measures:(1)By means of state intervention to adjust the quota and improve the inter period quota flow system,the price stability mechanism is established;(2)Through the establishment of information service platform and the improvement of information evaluation system,we can strengthen the prevention and control of market risk,strengthen the market access principle and industry self-discipline,and supplement the market risk supervision system in China,so as to strengthen the market risk supervision measures in China;(3)Accelerate the pace of integration with the international carbon market,and through cooperation with other countries Cooperation,learning advanced technologies from other countries,reducing China’s emission reduction costs,increasing China’s emission reductions,improving China’s carbon market system,enhancing China’s international status,safeguarding China’s legal rights,and promoting China’s economic transformation.