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Permit price dynamics in the U.S. SO2 trading program: A cointegration approach

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  • Boutabba, Mohamed Amine
  • Beaumais, Olivier
  • Lardic, Sandrine
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    Abstract

    The aim of this paper is to study empirically the determination and the dynamic behavior of the SO2 permit prices. Previous research focused on ex-post market price analysis without taking weather conditions into account. Therefore, this study attempts to fill a gap in the literature by providing new empirical evidence on the SO2 price evolution and its interactions with macroeconomic variables, microeconomic variables and climate variables. Using monthly data from January 1995 to December 2006, our estimation results indicate the existence of a long-term relationship between SO2 permit price, scrubbing costs, industrial production, and weather conditions. In the short run, SO2 permit price is affected by scrubbing costs, energy prices, and weather conditions. Policy makers and private investors could benefit from the findings of this study that provides useful information on the characteristics of the SO2 market and may plan their strategy.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0140988311000879
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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 34 (2012)
    Issue (Month): 3 ()
    Pages: 714-722

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    Handle: RePEc:eee:eneeco:v:34:y:2012:i:3:p:714-722

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

    Related research

    Keywords: SO2 emission permits; Price fundamentals;

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    References

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    15. Zhijie Xiao & Peter C.B. Phillips, 2001. "A CUSUM Test for Cointegration Using Regression Residuals," Cowles Foundation Discussion Papers 1329, Cowles Foundation for Research in Economics, Yale University.
    16. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    17. Hahn, Robert W. & May, Carol A., 1994. "The behavior of the allowance market: Theory and evidence," The Electricity Journal, Elsevier, vol. 7(2), pages 28-37, March.
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