European carbon markets and the global financial crisis

This paper considers investment characteristics of the European Union Emissions Trading Scheme (EU ETS) during the Global Financial Crisis (GFC). We show that European emissions trading markets demonstrate substantial price volatility, risk-adjusted return underperformance and positive correlations with other markets during the peak of the crisis. The poor investment performance of carbon assets during this period suggests that investors may need to avoid buy-and-hold strategies, reduce their portfolio weightings and consider other alternative investments until there is an improvement in economic conditions and, importantly, greater certainty with global climate change policy.