The impact of the European Union Emission Trading Scheme on electricity generation sectors
AbstractIn order to comply with their commitments under the Kyoto Protocol, France and Germany participate to the European Union Emission Trading Scheme (EU ETS) which concerns predominantly electricity generation sectors. In this paper we seek to know if the EU ETS gives appropriate economic incentives for an efficient and strong system in line with Kyoto commitments. Because if so electricity producers in these countries should include the price of carbon in their costs functions. After identifying the different sub periods of the EU ETS during its pilot phase (2005-2007), we model the prices of various electricity contracts and look at their volatilities around their fundamentals while evaluating the correlation between the electricity prices in the two countries. We find that electricity producers in both countries were constrained to include the carbon price in their cost functions during the first two years of operation of the EU ETS. During this period, German electricity producers were more constrained than their French conterparts and the inclusion of the carbon price in the cost function of electricity generation has been so much more stable in Germany than in France. Furthermore, the European market for emission allowances has increased the market power of the historical French electricity producer and has greatly contributed to the partial alignment of the wholesale price of electricity in France with those of Germany.
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Date of creation: Apr 2009
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Carbon Emission Trading; multivariate GARCH models; structural break; non parametric approach; energy prices.;
Other versions of this item:
- Djamel Kirat & Ibrahim Ahamada, 2009. "The impact of the European Union emission trading scheme on electricity generation sectors," Documents de travail du Centre d'Economie de la Sorbonne 09025, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Djamel Kirat & Ibrahim Ahamada, 2009. "The impact of the European Union Emission Trading Scheme on electricity generation sectors," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) hal-00378317, HAL.
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-23 (All new papers)
- NEP-ENV-2009-05-23 (Environmental Economics)
- NEP-REG-2009-05-23 (Regulation)
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- Ibrahim Ahamada & Djamel Kirat, 2012.
"The impact of phase II of the EU ETS on the electricity-generation sector,"
Documents de travail du Centre d'Economie de la Sorbonne
12007, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Ibrahim Ahamada & Djamel Kirat, 2012. "The impact of phase II of the EU ETS on the electricity-generation sector," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00673918, HAL.
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