The Emissions Trading System (EU ETS) is the main policy instrument for reducing greenhouse gas (GHG) emissions in the EU. Financial trading is important for the EU ETS as it allows regulated entities to hedge their exposure to changing allowance (EUA) prices, but excessive speculation could destabilize the market.

Thus we develop a theoretical model to understand the strategies and influence of financial actors in the EU ETS. In particular, we disentangle speculative and hedging activities by applying econometric methods of usual commodity markets to the EU ETS. We use the Commitment of Traders (CoT) data for this purpose.

Ariadne