The Empirical Analysis of the Effects of the COVID-19 Pandemic Crisis on the South Korea and Europe Carbon Market
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This study examines the impact of the COVID-19 pandemic on carbon credit prices in South Korea and Europe, aiming to analyze the implications for the South Korea and Europe carbon markets. The empirical analysis was based on the data of the Korean carbon credit and European carbon markets, which accounts for more than 80% of the global carbon credit market. The study is based on the daily Korean Allowance Unit (KAU) data from January 2015, when the Emissions Trading System (ETS) was first implemented, to December 2022, when the restrictions eased. For Europe, this study employed the European Union allowance (EUA) market data for the same period, using the EUA futures data, which expires in December every year and exhibit considerably higher liquidity than the EUA spot price. The results indicated that no significant Granger causality between the Volatility Index (VIX), EUA, and KAU during 2015 to 2019, before COVID-19 was identified. However, for 2020 to 2022 (the COVID-19 outbreak period), the null hypothesis of no Granger causality between the VIX and EUA at the 5% confidence level was rejected. These findings suggests that the economic crises and the consequent changes in the demand and supply of carbon emissions can affect the carbon credit price.
Abstract
This study examines the impact of the COVID-19 pandemic on carbon credit prices in South Korea and Europe, aiming to analyze the implications for the South Korea and Europe carbon markets. The empirical analysis was based on the data of the Korean carbon credit and European carbon markets, which accounts for more than 80% of the global carbon credit market. The study is based on the daily Korean Allowance Unit (KAU) data from January 2015, when the Emissions Trading System (ETS) was first implemented, to December 2022, when the restrictions eased. For Europe, this study employed the European Union allowance (EUA) market data for the same period, using the EUA futures data, which expires in December every year and exhibit considerably higher liquidity than the EUA spot price. The results indicated that no significant Granger causality between the Volatility Index (VIX), EUA, and KAU during 2015 to 2019, before COVID-19 was identified. However, for 2020 to 2022 (the COVID-19 outbreak period), the null hypothesis of no Granger causality between the VIX and EUA at the 5% confidence level was rejected. These findings suggests that the economic crises and the consequent changes in the demand and supply of carbon emissions can affect the carbon credit price.
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