Abstract This paper analyzes the price behavior of Phase III (2013–2020) EU-ETS emission allowances of CO2 by focusing on the dynamics of daily auction equilibrium prices and on the changes of the volatility of the underlying stochastic process. The paper derives the main testable statistical hypotheses (particularly that about the determinants of the conditional variance of prices) on the results derived in a model of optimal bidders’ behavior given the ETS auction rules. Tests are conducted by estimating various versions of GARCH models for both mean and variance equations of price return. Results show that the price dynamics is affected by factors including a measure of excess demand/offer and the number of winning bidders and that, contrary to expectations, reforms of the auction rules introduced at the end of Phase III explain a great part of the increased price volatility. The increased volatility is also positively associated with the bid spread and negatively associated with the number of bidders active in each auction round.
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