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The EU Emissions Trading Scheme : Disentangling the Effects of Industrial Production and CO2 Emissions on Carbon Prices

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Author Info

  • Emilie Alberola
  • Benoît Chèze
  • Julien Chevallier

Abstract

This article critically examines the impact of industrial production for sectors covered by the EU Emissions Trading Scheme (EU ETS) on emissions allowance spot prices during Phase I (2005-2007). Using sector production indices and CO2 emissions compliance positions dened by a ratio of allowance allocation relative to baseline emissions, we show that the effect of industrial activity on EU carbon price changes shall be analysed in conjunction with production peaks and compliance net short/long positions at the sector level. The results extend previous literature by showing that carbon price changes react not only to energy prices forecast errors and extreme temperatures events, but also to industrial production in three sectors covered by the EU ETS: combustion, paper and iron.

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File URL: http://economix.fr/pdf/dt/2008/WP_EcoX_2008-12.pdf
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Bibliographic Info

Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2008-12.

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Length: 37 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:drm:wpaper:2008-12

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Related research

Keywords: EU ETS; Emissions Trading; Carbon Pricing; CO2 Emissions; Industrial Production;

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References

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  1. Seifert, Jan & Uhrig-Homburg, Marliese & Wagner, Michael, 2008. "Dynamic behavior of CO2 spot prices," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 180-194, September.
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  7. Liaskas, K. & Mavrotas, G. & Mandaraka, M. & Diakoulaki, D., 2000. "Decomposition of industrial CO2 emissions:: The case of European Union," Energy Economics, Elsevier, Elsevier, vol. 22(4), pages 383-394, August.
  8. Emilie Alberola & Julien Chevallier, 2009. "European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007)," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 3), pages 51-80.
  9. Demailly, Damien & Quirion, Philippe, 2008. "European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry," Energy Economics, Elsevier, Elsevier, vol. 30(4), pages 2009-2027, July.
  10. Springer, Urs, 2003. "The market for tradable GHG permits under the Kyoto Protocol: a survey of model studies," Energy Economics, Elsevier, Elsevier, vol. 25(5), pages 527-551, September.
  11. Diakoulaki, D. & Mandaraka, M., 2007. "Decomposition analysis for assessing the progress in decoupling industrial growth from CO2 emissions in the EU manufacturing sector," Energy Economics, Elsevier, Elsevier, vol. 29(4), pages 636-664, July.
  12. Szymon Borak & Wolfgang Härdle & Stefan Trück & Rafal Weron, 2006. "Convenience Yields for CO2 Emission Allowance Futures Contracts," SFB 649 Discussion Papers SFB649DP2006-076, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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Citations

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Cited by:
  1. Oberndorfer, Ulrich, 2008. "EU Emission Allowances and the Stock Market: Evidence from the Electricity Industry," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 08-059, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Creti, Anna & Jouvet, Pierre-André & Mignon, Valérie, 2012. "Carbon price drivers: Phase I versus Phase II equilibrium?," Energy Economics, Elsevier, Elsevier, vol. 34(1), pages 327-334.
  3. 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.
  4. Rittler, Daniel, 2009. "Price Discovery, Causality and Volatility Spillovers in European Union Allowances Phase II: A High Frequency Analysis," Working Papers, University of Heidelberg, Department of Economics 0492, University of Heidelberg, Department of Economics.
  5. Oberndorfer, Ulrich, 2009. "EU Emission Allowances and the stock market: Evidence from the electricity industry," Ecological Economics, Elsevier, Elsevier, vol. 68(4), pages 1116-1126, February.
  6. Koop, Gary & Tole, Lise, 2011. "Forecasting the European Carbon Market," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2011-20, Scottish Institute for Research in Economics (SIRE).
  7. Gary Koop & Lise Tole, 2013. "Forecasting the European carbon market," Journal of the Royal Statistical Society Series A, Royal Statistical Society, Royal Statistical Society, vol. 176(3), pages 723-741, 06.
  8. Clò, Stefano & Battles, Susan & Zoppoli, Pietro, 2013. "Policy options to improve the effectiveness of the EU emissions trading system: A multi-criteria analysis," Energy Policy, Elsevier, Elsevier, vol. 57(C), pages 477-490.
  9. Julien Chevallier & Johanna Etner & Pierre-André Jouvet, 2008. "Bankable Pollution Permits under Uncertainty and Optimal Risk Management Rules: Theory and Empirical Evidence," EconomiX Working Papers 2008-25, University of Paris West - Nanterre la Défense, EconomiX.
  10. Yue-Jun Zhang & Yi-Ming Wei, 2009. "An overview of current research on EU ETS: Evidence from its operating mechanism and economic effect," CEEP-BIT Working Papers, Center for Energy and Environmental Policy Research (CEEP), Beijing Institute of Technology 3, Center for Energy and Environmental Policy Research (CEEP), Beijing Institute of Technology.

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