## Abstract

This chapter is dedicated to the Clean Development Mechanism (CDM), and more particularly to the secondary Certified Emissions Reductions (CER) originated under these project mechanisms. Indeed, secondary CERs are valid for compliance within the European trading system up to 13.4% on average. Following a review of the main characteristics of CER contracts and price development, we study the relationship between EUAs and CERs in vector autoregressive and cointegration models. Then, we identify the main CER price drivers based on the Zivot-Andrews structural break tests and regression analysis. Finally, we discuss the main reasons behind the existence of the CER-EUA spread, and highlight the possibilities to benefit from arbitrage opportunities. The Appendix shows how to represent the interactions between EUAs and CERs in a Markov regime-switching environment.

## Keywords

Clean Development Mechanism Emission Trading Scheme Clean Development Mechanism Project Granger Causality Test Arbitrage Opportunity## References

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