Ozturk, Serda SelinDemirer, RizaGupta, Rangan2023-06-132022-08Ozturk, S.S., Demirer, R. & Gupta, R. 2022, 'Climate uncertainty and carbon emissions prices: The relative roles of transition and physical climate risks', Economics Letters, vol. 217, art. 110687, pp. 1-6, doi : 10.1016/j.econlet.2022.110687.0165-1765 (print)1873-7374 (online)10.1016/j.econlet.2022.110687http://hdl.handle.net/2263/91103This study examines the role of climate uncertainty on carbon emissions price dynamics using novel measures of uncertainty that capture transitional and physical climate risks. Applying a multivariate stochastic volatility model to daily European Union Allowance prices, we show that climate uncertainty indeed serves as a significant driver of price fluctuations in emissions prices with physical climate risks associated with uncertainty surrounding natural hazards playing a more dominant role over policy uncertainty in recent years. While our findings highlight the growing role of public concern over global warming and climate hazards than policy aspects as a driver of pricing dynamics in the emissions market, our findings present an interesting opening for hedging strategies towards attaining decarbonization goals in investment positions.en© 2022 Elsevier B.V. All rights reserved. Notice : this is the author’s version of a work that was accepted for publication in Economics Letters. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. A definitive version was subsequently published in Economics Letters, vol. 217, art. 110687, pp. 1-6, doi : 10.1016/j.econlet.2022.110687.Climate risksCarbon pricesStochastic volatilitySDG-13: Climate actionPostprint Article