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First Evidence of Asymmetric Cost Pass-through of EU Emissions Allowances: Examining Wholesale Electricity Prices in Germany

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  • Georg Zachmann
  • Christian von Hirschhausen

Abstract

This paper applies the literature on asymmetric price transmission to the emerging commodity market for EU emissions allowances (EUA). We utilize an error correction model and an autoregressive distributed lag model to measure the relationship between CO2 price changes and the development of wholesale electricity prices. Using data from the German market for electricity and EUAs, we find that the rising prices of EUAs have a stronger impact on wholesale electricity prices than falling prices -- the first empirical evidence of asymmetric cost passthrough for these new allowances.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.60186.de/dp708.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 708.

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Length: 8 p.
Date of creation: 2007
Date of revision:
Handle: RePEc:diw:diwwpp:dp708

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  1. Borenstein, Severin & Cameron, A Colin & Gilbert, Richard, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 305-39, February.
  2. Sijm, J. & Neuhoff, K. & Chen, Y., 2006. "CO2 cost pass through and windfall profits in the power sector," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0639, Faculty of Economics, University of Cambridge.
  3. Matteo Manera & Giliola Frey, 2005. "Econometric Models of Asymmetric Price Transmission," Working Papers, Fondazione Eni Enrico Mattei 2005.100, Fondazione Eni Enrico Mattei.
  4. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(3), pages 466-502, June.
  5. Jochen Meyer & Stephan Cramon-Taubadel, 2004. "Asymmetric Price Transmission: A Survey," Journal of Agricultural Economics, Wiley Blackwell, Wiley Blackwell, vol. 55(3), pages 581-611.
  6. Nathan S. Balke & Stephen P. A. Brown & Mine Y├╝cel, 1998. "Crude oil and gasoline prices: an asymmetric relationship?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, Federal Reserve Bank of Dallas, issue Q 1, pages 2-11.
  7. Kaufmann, Robert K. & Laskowski, Cheryl, 2005. "Causes for an asymmetric relation between the price of crude oil and refined petroleum products," Energy Policy, Elsevier, Elsevier, vol. 33(12), pages 1587-1596, August.
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