Bubble in Carbon Credits during COVID-19: Financial Instability or Positive Impact (“Minsky” or “Social”)?
2. Literature Review
3. Data and Research Methodology
- KRBN (tracking IHS Markit Global Carbon),
- GRN (tracking Barclays Global Carbon II TR) and
- Solactive Carbon Emission Allowances Rolling Futures TR (SOLCARBT).
4. Empirical Results
- β = 0.52 ± 0.38
- ω = 9.65 ± 3.39
- Minimum Drawdown (%) = 14%
- Average Drawdown (%) = 54%
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
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Drawdown is the cumulative loss from one local maximum to the immediate next minimum; a size that is above the threshold ‘ε’.
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|A||(>0)||Korzeniowski and Kuropka (2013)|
|B||(<0)||Lin et al. (2014)|
|C1||(Cos function)||Filimonov and Sornette (2013)|
|C2||(Sine function)||Filimonov and Sornette (2013)|
|tc||(t to ∞)||Korzeniowski and Kuropka (2013)|
|Β||(0.1 to 0.9)||Lin et al. (2014)|
|Ω||(4.8 to 13)||Johansen (2003)|
|KRBN||B1||2 November 2020 to|
17 December 2020
|B2||15 January 2021 to|
16 February 2021
|B3||17 March 2021 to|
14 May 2021
|B4||19 May 2021 to|
5 July 2021
|B5||22 July 2021 to|
25 October 2021
|GRN||B1||8 October 2019 to|
20 December 2019
|B2||11March 2020 to|
9 April 2020
|B3||4 May 2020 to|
9 June 2021
|B4||11 June 2021 to|
1 August 2021
|B5||19 October 2021 to|
11 November 2021
|SOLCARBT||B1||18 March 2020 to|
14 July 2020
|B2||28 October 2020 to|
14 May 2021
|B3||23 July 2021 to|
5 October 2021
|Sr. No.||Critical Date||Drawdown||Company/Index||Events|
|1||9 June 21||220%||GRN||Mark Carney, a former governor of the Bank of England, and Bill Winters, the chief executive of Standard Chartered have set up a task force to finalize recommendations for smaller and more permanent governance in this new carbon-offset market.|
|2||14 May 21||143%||SOLCARBT||Climate Action Tracker estimated that climate policies implemented across the world at present, including the effect of the pandemic, will lead to a temperature rise of 2.9 °C by the end of the century|
|3||14 July 20||93%||SOLCARBT||According to Directive 2003/87/EC, the EU ETS covers emissions from all stationary installations in EU Member States. However, emissions from stationary installations in the United Kingdom are no longer within the scope of the Union law and the EU ETS.|
|4||17 April 20||42%||GRN||As of April 2020, Denmark, France, New Zealand, Sweden, and the UK have built on this commitment and enshrined in law a net zero CO2 emissions target into legislation, while Suriname and Bhutan are already carbon negative. In addition, 15 subnational regions, 398 cities, 786 businesses, and 16 investors have also indicated that they are working toward achieving net zero emission targets.|
|5||14 May 21||32%||KRBN||Climate Action Tracker estimated that climate policies implemented across the world at present, including the effect of the pandemic, will lead to a temperature rise of 2.9 °C by the end of the century.|
|6||17 December 20||28%||KRBN||More than 8.6 million future vintage allowances, cleared at $17.35/tonne as entities, could buy state-owned allowances before the end of the current compliance period.|
|7||8 November 21||25%||KRBN||A spokesperson for Bezos’ $10 billion “Bezos Earth Fund” told The Independent that the Amazon founder also “offsets all carbon emissions from his flights”. In his 2021 book, “How to Avoid a Climate Disaster”, Gates writes that he counteracts his non-aviation emissions by “buying offsets through a company that runs a facility that removes carbon dioxide from the air”.|
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Ghosh, B.; Papathanasiou, S.; Dar, V.; Gravas, K. Bubble in Carbon Credits during COVID-19: Financial Instability or Positive Impact (“Minsky” or “Social”)? J. Risk Financial Manag. 2022, 15, 367. https://doi.org/10.3390/jrfm15080367
Ghosh B, Papathanasiou S, Dar V, Gravas K. Bubble in Carbon Credits during COVID-19: Financial Instability or Positive Impact (“Minsky” or “Social”)? Journal of Risk and Financial Management. 2022; 15(8):367. https://doi.org/10.3390/jrfm15080367Chicago/Turabian Style
Ghosh, Bikramaditya, Spyros Papathanasiou, Vandita Dar, and Konstantinos Gravas. 2022. "Bubble in Carbon Credits during COVID-19: Financial Instability or Positive Impact (“Minsky” or “Social”)?" Journal of Risk and Financial Management 15, no. 8: 367. https://doi.org/10.3390/jrfm15080367