Efficiency of European emissions markets: Lessons and implications

While prior studies have shown that emission rights and futures contracts on emission rights are efficiently priced, there are no studies on the efficiency of the options market. Therefore, this study fills the gap. We examine empirical evidence regarding the efficiency of the options market for emissions rights in Europe. We employ the put-call parity approach to test the efficiency of options on emission rights traded in the European market. This implies that firms can trade options on emission rights in addition to other existing strategies in order to manage their greenhouse gas emissions.

► Efficiency of the European options market for emissions.
► Design implications for the development of emissions trading schemes in other countries.
► Governance issues pertaining to emissions trading.