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Why is Spot Carbon so Cheap and Future Carbon so Dear? The Term Structure of Carbon Prices

Don Bredin and John Parsons

October 2014

Don Bredin and John Parsons, October 2014

This study examines carbon spot and futures price relationships and the dynamics of the carbon term structure in the European Union Emission Trading Scheme (ETS) between 2005-2012. Using spot and futures prices, we calculate an implied cost of carry. Using sequential futures prices, we calculate the implied forward cost of carry. Under the rules of the ETS, the cost of carry is

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