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Electricity, carbon and weather in France: where do we stand ?

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Author Info

  • Sophie Chemarin

    ()
    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)

  • Andreas Heinen

    (Departamento de Estadistica y Econometria - Universidad Carlos III , Madrid, Spain)

  • Eric Strobl

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)

Abstract

As a tool to fight long run changes in climate the European Union explicitly introduced the emission trading scheme (EU ETS) on January 1, 2005, which aimed at reducing carbon emission by 8% by 2012, and was designed to operate in two phases. Using data related to the first phase, this article investigates the role that the EU ETS plays in the power generation market by taking into account the existence of possible cross-spillovers between the French carbon and the French electricity spot markets, the spot prices of natural gas and of oil, and climatic conditions in France and elsewhere. Results show that there is no short run relationship between the electricity and carbon returns, while there is a long run relationship. However, this relationship suffers from a disequilibrium in that the electricity price readjust in the long run. We also find that while there are own mean and own volatility spillovers in the two markets, there are no cross own mean and own volatility spillovers, indicating that the electricity spot market and the carbon spot market are not integrated. Finally, results underline the limited impact of weather on the interconnection of these markets.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00340171.

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Date of creation: Jun 2008
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Handle: RePEc:hal:wpaper:hal-00340171

Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00340171/en/
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Related research

Keywords: Carbon market; Electricity; Weather; Multivariate GARCH;

References

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  1. BAUWENS, Luc & LAURENT, Sébastien & ROMBOUTS, Jeroen, 2003. "Multivariate GARCH models: a survey," CORE Discussion Papers 2003031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Sijm, J. & Neuhoff, K. & Chen, Y., 2006. "CO2 cost pass through and windfall profits in the power sector," Cambridge Working Papers in Economics 0639, Faculty of Economics, University of Cambridge.
  3. Considine, Timothy J., 2000. "The impacts of weather variations on energy demand and carbon emissions," Resource and Energy Economics, Elsevier, vol. 22(4), pages 295-314, October.
  4. Bystrom, Hans N. E., 2005. "Extreme value theory and extremely large electricity price changes," International Review of Economics & Finance, Elsevier, vol. 14(1), pages 41-55.
  5. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February.
  6. Tse, Y K & Tsui, Albert K C, 2002. "A Multivariate Generalized Autoregressive Conditional Heteroscedasticity Model with Time-Varying Correlations," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 351-62, July.
  7. De Vany, Arthur S. & Walls, W. David, 1999. "Cointegration analysis of spot electricity prices: insights on transmission efficiency in the western US," Energy Economics, Elsevier, vol. 21(5), pages 435-448, October.
  8. Andrew C. Worthington & Adam Kay-Spratley & Helen Higgs, 2002. "Transmission of prices and price volatility in Australian electricity spot markets: A multivariate GARCH analysis," School of Economics and Finance Discussion Papers and Working Papers Series 114, School of Economics and Finance, Queensland University of Technology.
  9. Pardo, Angel & Meneu, Vicente & Valor, Enric, 2002. "Temperature and seasonality influences on Spanish electricity load," Energy Economics, Elsevier, vol. 24(1), pages 55-70, January.
  10. Damien Demailly & Philippe Quirion, 2006. "CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: Grandfathering vs. output-based allocation," Post-Print halshs-00639327, HAL.
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Cited by:
  1. Moutinho, Victor & Vieira, Joel & Carrizo Moreira, António, 2011. "The crucial relationship among energy commodity prices: Evidence from the Spanish electricity market," Energy Policy, Elsevier, vol. 39(10), pages 5898-5908, October.

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