Price dynamics in the European Union Emissions Trading System and evaluation of its ability to boost emission-related investment decisions

The price of permits in the European Union Emissions Trading System (EU ETS) has historically been highly sensitive and prone to jumps. We consider different stochastic processes to model the price of permits, and show that the Variance Gamma (VG) model provides the best fit for the price distribution, among a selection of infinite activity processes. Using this result as a starting point, we assess the effects of the EU ETS in delivering...