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EUAs and CERs: Vector Autoregression, Impulse Response Function and Cointegration Analysis


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  • Julien Chevallier

    (Université Paris Dauphine)


EUAs are European Union Allowances traded on the EU Emissions Trading Scheme (EU ETS), while Certified Emissions Reductions (CERs) arise from the Clean Development Mechanism under the Kyoto Protocol. These emissions assets attract an increasing attention among brokers, investors and operators on emissions markets, because they may be both used for compliance under the EU ETS (up to fixed limits). This paper proposes a statistical analysis of the inter-relationships between EUA and CER price series, by using vector autoregression, impulse response function, and cointegration analysis on daily data from March 9, 2007 to January 14, 2010. The central results show that EUAs and CERs affect each other significantly through the vector autoregression model, and react quite rapidly to shocks on each other through the impulse response function analysis. Most importantly, both price series are found to be cointegrated, with EUAs leading the price discovery process in the long-term through the vector error correction mechanism.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 1 ()
Pages: 558-576

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Handle: RePEc:ebl:ecbull:eb-10-00037

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Keywords: EUA; CER; Vector Autoregression; Impulse Response Function; Cointegration; Vector Error Correction Model; EU ETS; Price Discovery.;

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  1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  2. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
  3. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198774501, October.
  4. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  5. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, Elsevier, vol. 58(1), pages 17-29, January.
  6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
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Cited by:
  1. Nazifi, Fatemeh, 2013. "Modelling the price spread between EUA and CER carbon prices," Energy Policy, Elsevier, Elsevier, vol. 56(C), pages 434-445.
  2. Schultz, Emma & Swieringa, John, 2014. "Catalysts for price discovery in the European Union Emissions Trading System," Journal of Banking & Finance, Elsevier, Elsevier, vol. 42(C), pages 112-122.
  3. Mizrach, Bruce, 2012. "Integration of the global carbon markets," Energy Economics, Elsevier, Elsevier, vol. 34(1), pages 335-349.
  4. Chevallier, Julien, 2011. "Anticipating correlations between EUAs and CERs : a dynamic conditional correlation GARCH model," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/5441, Paris Dauphine University.
  5. Julien Chevallier, 2012. "EUAs and CERs: Interactions in a Markov regime-switching environment," Economics Bulletin, AccessEcon, vol. 32(1), pages 86-101.
  6. Koop, Gary & Tole, Lise, 2013. "Modeling the relationship between European carbon permits and certified emission reductions," Journal of Empirical Finance, Elsevier, Elsevier, vol. 24(C), pages 166-181.
  7. Ange Nsouadi & Jules Sadefo Kamdem & Michel Terraza, 2013. "Analyse temps-fréquence de la relation entre les prix du quota et du crédit carbone," Working Papers, LAMETA, Universtiy of Montpellier 13-12, LAMETA, Universtiy of Montpellier, revised Nov 2013.
  8. Medina, Vicente & Pardo, Ángel & Pascual, Roberto, 2014. "The timeline of trading frictions in the European carbon market," Energy Economics, Elsevier, Elsevier, vol. 42(C), pages 378-394.
  9. Vicente Medina & Angel Pardo & Roberto Pascual, 2013. "Carbon Credits: Who is the Leader of the Pack?," International Journal of Energy Economics and Policy, Econjournals, Econjournals, vol. 3(3), pages 210-220.
  10. Oscar Carchano & Vicente Medina Martínez & Ángel Pardo Tornero, 2012. "Rolling over EUAs and CERs," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2012-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  11. Oscar Carchano & Vicente Medina & Angel Pardo, 2014. "Assessing Rollover Criteria for EUAs and CERs," International Journal of Economics and Financial Issues, Econjournals, Econjournals, vol. 4(3), pages 669 - 676.


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