From Biofuel Illusions to Systemic Risk Pricing: Reimagining Carbon Markets for Real Climate Mitigation

This dataset and accompanying Python code support the empirical study titled "From Biofuel Illusions to Systemic Risk Pricing: Reimagining Carbon Markets for Real Climate Mitigation." The project investigates whether investor sensitivity to carbon price risk changes under different market conditions—particularly during transitions between low- and high-volatility regimes. The goal is to uncover nonlinear dynamics in climate-related financial risk using regime-switching models. The study leverages monthly equity returns for major European energy and industrial firms, simulated market index data (CAC 40), and historical carbon futures price data (ICE EUA). A Markov Regime-Switching (MRS) model is applied to estimate separate beta coefficients across volatility regimes. This repository includes: ✅ Cleaned and aligned data for each firm and market series (CSV) ✅ Carbon Emissions Futures dataset processed to monthly returns ✅ Simulated CAC 40 market returns (CSV) ✅ carbon.py: Python script to reproduce the analysis in Google Colab or locally