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The Economic and Financial Determinants of Carbon Prices

By Carlo Carraro and Alice Favero

Abstract

The aim of this paper is to analyze the economic and financial determinants of carbon dioxide (CO2) prices from the short and long-term perspective, in particular within the EU-wide CO2 emissions trading system (EU ETS). After reviewing present carbon markets, this paper investigates the several drivers of carbon prices from both n financial and an economic perspective. It then examines the main impacts of these drivers in the short and long term. Finally, by comparing the results of several academic and financial studies, this paper identifies the average carbon price and its standard deviation for different future time horizons.CO2 emission allowances, Emissions Trading Scheme, EU ETS, CO2 price, carbon market

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