Does Portfolio Allocation and Optimization With Carbon Offsets Improve Performance?

In-person participation

Conte and Kotchen (2010) first identified factors that explain the large variability in the price of voluntary carbon offsets, which are instruments that promise a direct reduction, removal, or avoidance of carbon emissions underlined by a carbon project. Since then, the global volume of voluntary carbon offsets resulting from avoided deforestation, afforestation, renewable energies, and others has grown to approximately USD 2 billion in 2022 and is expected to reach USD 50 billion by 2030 (Blaufelder et al. 2021). But compliance carbon markets around the world are larger than their voluntary counterparts. The European Emissions Trading Scheme (EU ETS) is the largest compliance market in the world and provides agents with regulator-backed real options to pollute.

This talk focuses on whether the integration of carbon offsets into investment portfolios improves risk-adjusted performance using return data on compliance allowances and voluntary carbon offsets. With the Russia-Ukraine war functioning as an exogenous shock proxy, we identify some risk-return characteristics of compliance and voluntary carbon markets that are relevant for investors. Our work suggests that while diversified portfolios may benefit from carbon offsets integration, in the presence of large shocks to the global economy regulated emissions may be prioritized as voluntary abatements become secondary.

The presentation will be given in English.

Agenda:

6:00 - 6:30 pm: Registration

6:30 - 7:30 pm: Presentation and Q&A

7:30 - 9:00 pm: Networking Reception

Details

April 27, 2023
6:00 PM - 9:00 PM

In-Person

Frankfurt School of Finance & Management Adickesallee 32-34, Frankfurt am Main, 60322