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The transition to a low-carbon economy is imperative to reduce reliance on fossil fuels and mitigate pollution emissions. This preposition also aligns with the United Nations Sustainable Development Goals (SDGs-13), which highlight the climate change action. In this vein, Brazil has implemented the Decarbonization Credit (CBIOS) program to incentivize biofuel production and promote environmental sustainability through carbon credit emissions. To this end, the present study evaluates the effectiveness of the CBIO contract as a hedging tool for investors in the face of energy price fluctuations and decarbonization efforts. Specifically, we employ conditional dynamic correlation (DCC-GARCH) and optimal hedge ratio (HR) techniques to assess the relationship between CBIO and the futures and spot prices of sugar, oil, and ethanol. Our findings suggest that the current CBIO contract is not an effective hedge against energy spot and future prices. However, our analysis identifies a strengthening correlation between ethanol traded in Chicago and CBIO over time, highlighting the potential for an underlying contract to serve as an effective hedging tool in the future. Our study adds to the existing literature on carbon pricing mechanisms and their impact on financial markets, emphasizing the importance of sustainable energy policies and their potential to mitigate the risks associated with energy price volatility and decarbonization efforts. [ABSTRACT FROM AUTHOR]

Two different fractal regression methodologies were employed with the aim of understanding the relationship between prices of ethanol produced in the USA and Brazil, the most important producers of ethanol. These methodologies, which have the advantage of giving us information about the relationships between different timescales, could also provide interesting and important information about this particular market. Our results suggest, first, some differences in the basic price in these markets, and second, a positive relationship between prices (as expected) but not a one‐to‐one relationship. © 2021 Society of Chemical Industry and John Wiley & Sons, Ltd [ABSTRACT FROM AUTHOR]