Price Break Points and Impact Process Evaluation in the EU ETS

The paper identifies break points in the European Union Emissions Trading Scheme (EU ETS) from 2005 to 2018 using multiple structural change model, and illustrates the impact process of these break points on expected carbon returns and volatility using bilaterally modified dummies. Our results show five break points: April 27 and November 10, 2006, in phase I; November 17, 2008, November 3, 2014, and October 4, 2016, in phases II and III. On average, the two break points in phase I have a negative impact on carbon expected returns while the three break points in phases II and III have a positive impact. Only the break point on April 27, 2006, significantly increases the volatility of carbon prices. Our results affirm the effectiveness of successive short-, medium-, and long-term policy adjustments that aim to change the prolonged downturn in carbon price.