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Cost pass-through of the EU emissions allowances: Examining the European petroleum markets

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  • Alexeeva-Talebi, Victoria
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    Abstract

    This paper explores the ability of European refineries to pass-through costs associated with the introduction of the EU Emissions Trading Scheme (EU ETS). A sequence of vector error correction models (VECM) has been estimated within a multinational setting which covers 14 EU Member States. Using weekly data at the country level, this paper finds an influence of prices for European Union Allowances (EUAs) on unleaded petrol retail prices during the trial phase of the EU ETS from 2005 to 2007. The country-specific long-run elasticities of petrol prices with respect to the EUA prices are between 0.01 and 0.09. Given that these elasticities are of the same order of magnitude as the share of carbon allowances costs in total production costs in the refining industry, the estimates are consistent with the full pass-through potential. The variance decomposition analysis shows furthermore that a significant fraction of petrol price changes in Austria, Germany, France and Spain can be explained by changes in allowances prices (between 10% and 20%).

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 33 (2011)
    Issue (Month): S1 ()
    Pages: S75-S83

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    Handle: RePEc:eee:eneeco:v:33:y:2011:i:s1:p:s75-s83

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    Web page: http://www.elsevier.com/locate/eneco

    Related research

    Keywords: Cost pass-through; Emissions Trading Scheme; Refineries;

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    Cited by:
    1. ZhongXiang Zhang, 2012. "Competitiveness and Leakage Concerns and Border Carbon Adjustments," CCEP Working Papers 1208, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.
    2. repec:hal:wpaper:hal-00866408 is not listed on IDEAS
    3. Malina, Robert & McConnachie, Dominic & Winchester, Niven & Wollersheim, Christoph & Paltsev, Sergey & Waitz, Ian A., 2012. "The impact of the European Union Emissions Trading Scheme on US aviation," Journal of Air Transport Management, Elsevier, vol. 19(C), pages 36-41.
    4. repec:hal:ciredw:hal-00866408 is not listed on IDEAS
    5. Koesler, Simon & Achtnicht, Martin & Köhler, Jonathan, 2012. "Capped steam ahead: A case study among ship operators on a maritime ETS," ZEW Discussion Papers 12-044, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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