EU ETS IN TIMES OF CRISIS AN EVENT STUDY OF EMISSIONS ALLOWANCES AND THE AVIATION INDUSTRY DURING THE COVID-19 PANDEMIC

Abstract: Global warming, caused by greenhouse gas emissions, increase the temperature on earth, leading to higher sea levels and increased droughts and floods. Hence, global warming must be reduced urgently. The European Union (EU) therefore introduced the emission trading system (ETS) to incentivise energy-intensive corporations and industries to reduce their carbon dioxide emissions. Despite this, the aviation industry is a fast-growing source of carbon dioxide emissions. However, the aviation industry changed radically in the COVID-19 outbreak. Consequently, this thesis examined the relation and correlation between the EU ETS carbon price and airlines’ share price in times of crises. The relation and correlation were examined using both literature and statistical analysis. Two hypotheses were created to identify the relation and correlation between the investigated variables. The analysis was conducted as an event study, using bivariate linear regression and Pearson’s correlation. Two time periods were created, before and after the COVID-19 outbreak. The results were decisive and showed that the majority of airlines’ share price had a stronger relationship with the EU ETS carbon price development after the COVID- 19 outbreak. Additionally, the correlation coefficients mainly increased after the COVID-19 outbreak and changed from negative to positive to a great extent. The results thus imply that the aviation industry is impacted by the EU ETS in times of crisis, indicating the suitability of the EU ETS.