Granger causality of Carbon allowances and Carbon offsets in the Korean carbon market.

Abstract

In the Korean carbon market system, KAU is the most representative Carbon allowance, and KOC is an external project allowance that can be exchanged for offset allowance. In the carbon market, these two are traded at 1KAU = 1KOC, but the values of the two products do not match due to various factors. In this study, the stability of the two prices was tested and the cointegration relationship was investigated. While measuring the Granger causality of the two variables, it was found that there was a change in the causality of the two variables in the first and second transition periods of the Korean carbon market. This appears to be due to the difference between the first and second operating periods for the upper limit of the use of offsetting allowances for proof of compliance.