Hedging Strategies in Carbon Emission Price Dynamics: Implications for Shipping Markets
The European Union (EU) has agreed to gradually include shipping in the EU emissions trading scheme (EU ETS), which makes shipping companies vulnerable to carbon price fluctuations. The aim of this paper is to investigate the effectiveness of carbon and petroleum futures contracts in managing carbon...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2023-09-01
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| Series: | Energies |
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| Online Access: | https://www.mdpi.com/1996-1073/16/17/6396 |
| _version_ | 1797582496249937920 |
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| author | Theodoros Syriopoulos Efthymios Roumpis Michael Tsatsaronis |
| author_facet | Theodoros Syriopoulos Efthymios Roumpis Michael Tsatsaronis |
| author_sort | Theodoros Syriopoulos |
| collection | DOAJ |
| description | The European Union (EU) has agreed to gradually include shipping in the EU emissions trading scheme (EU ETS), which makes shipping companies vulnerable to carbon price fluctuations. The aim of this paper is to investigate the effectiveness of carbon and petroleum futures contracts in managing carbon and bunker risks. We examine the effectiveness of alternative hedging methods, including both static and dynamic approaches, to estimate optimal hedge ratios under single and composite cross-hedge settings. Our results show that carbon future contracts are important for hedging the carbon emission allowances price risk, and Brent oil futures are the most effective instrument for out-of-sample hedging of bunker prices. In addition, the hedging effectiveness indicates that conventional methods outperform the sophisticated models in terms of variance reduction. Our study offers new insights into how the carbon and bunker markets relate to a combination hedging in reducing the joint price risk, which can be used to promote risk management in the market. |
| first_indexed | 2024-03-10T23:23:10Z |
| format | Article |
| id | doaj.art-032066f2b6ee4ceb83e1d9ac8cb59c36 |
| institution | Directory Open Access Journal |
| issn | 1996-1073 |
| language | English |
| last_indexed | 2024-03-10T23:23:10Z |
| publishDate | 2023-09-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Energies |
| spelling | doaj.art-032066f2b6ee4ceb83e1d9ac8cb59c362023-11-19T08:07:17ZengMDPI AGEnergies1996-10732023-09-011617639610.3390/en16176396Hedging Strategies in Carbon Emission Price Dynamics: Implications for Shipping MarketsTheodoros Syriopoulos0Efthymios Roumpis1Michael Tsatsaronis2Ports Management and Shipping Department, School of Economics and Political Sciences, National and Kapodistrian University of Athens, 15772 Athens, GreecePorts Management and Shipping Department, School of Economics and Political Sciences, National and Kapodistrian University of Athens, 15772 Athens, GreecePorts Management and Shipping Department, School of Economics and Political Sciences, National and Kapodistrian University of Athens, 15772 Athens, GreeceThe European Union (EU) has agreed to gradually include shipping in the EU emissions trading scheme (EU ETS), which makes shipping companies vulnerable to carbon price fluctuations. The aim of this paper is to investigate the effectiveness of carbon and petroleum futures contracts in managing carbon and bunker risks. We examine the effectiveness of alternative hedging methods, including both static and dynamic approaches, to estimate optimal hedge ratios under single and composite cross-hedge settings. Our results show that carbon future contracts are important for hedging the carbon emission allowances price risk, and Brent oil futures are the most effective instrument for out-of-sample hedging of bunker prices. In addition, the hedging effectiveness indicates that conventional methods outperform the sophisticated models in terms of variance reduction. Our study offers new insights into how the carbon and bunker markets relate to a combination hedging in reducing the joint price risk, which can be used to promote risk management in the market.https://www.mdpi.com/1996-1073/16/17/6396emissions trading schemeshippinghedgingcarbon emissionbunker risk |
| spellingShingle | Theodoros Syriopoulos Efthymios Roumpis Michael Tsatsaronis Hedging Strategies in Carbon Emission Price Dynamics: Implications for Shipping Markets Energies emissions trading scheme shipping hedging carbon emission bunker risk |
| title | Hedging Strategies in Carbon Emission Price Dynamics: Implications for Shipping Markets |
| title_full | Hedging Strategies in Carbon Emission Price Dynamics: Implications for Shipping Markets |
| title_fullStr | Hedging Strategies in Carbon Emission Price Dynamics: Implications for Shipping Markets |
| title_full_unstemmed | Hedging Strategies in Carbon Emission Price Dynamics: Implications for Shipping Markets |
| title_short | Hedging Strategies in Carbon Emission Price Dynamics: Implications for Shipping Markets |
| title_sort | hedging strategies in carbon emission price dynamics implications for shipping markets |
| topic | emissions trading scheme shipping hedging carbon emission bunker risk |
| url | https://www.mdpi.com/1996-1073/16/17/6396 |
| work_keys_str_mv | AT theodorossyriopoulos hedgingstrategiesincarbonemissionpricedynamicsimplicationsforshippingmarkets AT efthymiosroumpis hedgingstrategiesincarbonemissionpricedynamicsimplicationsforshippingmarkets AT michaeltsatsaronis hedgingstrategiesincarbonemissionpricedynamicsimplicationsforshippingmarkets |