Trading Under Uncertainty

An investigation of the Australia emissions market

Authored by: Deborah Cotton , Marija Buzevska

Routledge Handbook of Social and Sustainable Finance

Print publication date:  June  2016
Online publication date:  June  2016

Print ISBN: 9781138777545
eBook ISBN: 9781315772578
Adobe ISBN: 9781317678830


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The Renewable Energy Target (RET) scheme was established as a direct response to the government’s commitment to facilitate a smoother transition into a clean energy future for Australia through the reduction of emissions of harmful greenhouse gases (GHGs) from electricity generation. Specifically, the scheme aims to ensure that the equivalent of at least 20 percent of electricity is produced from renewable sources by 2020. Since its inception in 2001, the RET scheme has been the subject of constant review and policy restructure. Despite the long-run operation of the scheme, trading on the market is light and a far reach from operating as a developed financial market. In particular, with respect to liquidity, the market displays potential issues regarding a low frequency of trade, with only as few as 113,023 certificates traded on a weekly basis. This study aims to determine whether an elevated ambiguity surrounding the RET scheme is an explanatory factor for these issues. Principally, the research centers on answering the question—“Are observed inefficiencies in the RET in Australia attributable to a presence of elevated ambiguity in the market?”

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