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Explaining European Emission Allowance Price Dynamics: Evidence from Phase II

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  • Wilfried Rickels
  • Dennis Görlich
  • Sonja Peterson

Abstract

type="main" xml:id="geer12045-abs-0001"> We empirically investigate potential determinants of the allowance price dynamics in the European Union Emission Trading Scheme during Phase II. In contrast to previous studies, we place particular emphasis on the fuel price selection. We show that results are extremely sensitive to choosing different price series of potential determinants, such as coal and gas prices. In general, only the influence of economic activity in Europe and hydropower provision in Norway is robustly explaining allowance price dynamics. The influence of fuel switching on allowance prices and, therefore, equalization of marginal abatement costs – in particular in the long run – is still rather small.

Suggested Citation

  • Wilfried Rickels & Dennis Görlich & Sonja Peterson, 2015. "Explaining European Emission Allowance Price Dynamics: Evidence from Phase II," German Economic Review, Verein für Socialpolitik, vol. 16(2), pages 181-202, May.
  • Handle: RePEc:bla:germec:v:16:y:2015:i:2:p:181-202
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    File URL: http://hdl.handle.net/10.1111/geer.2015.16.issue-2
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    1. repec:eee:eneeco:v:67:y:2017:i:c:p:213-223 is not listed on IDEAS
    2. Delarue, Erik & Van den Bergh, Kenneth, 2016. "Carbon mitigation in the electric power sector under cap-and-trade and renewables policies," Energy Policy, Elsevier, vol. 92(C), pages 34-44.
    3. repec:eee:enepol:v:107:y:2017:i:c:p:119-130 is not listed on IDEAS
    4. Aatola, Piia & Ollikainen, Markku & Toppinen, Anne, 2013. "Price determination in the EU ETS market: Theory and econometric analysis with market fundamentals," Energy Economics, Elsevier, vol. 36(C), pages 380-395.
    5. Gavard, Claire & Kirat, Djamel, 2017. "Flexibility in the market for international carbon credits and price dynamics difference with European allowances," ZEW Discussion Papers 17-054, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Panagiotis G. Papaioannou & George P. Papaioannou & Kostas Siettos & Akylas Stratigakos & Christos Dikaiakos, 2017. "Dynamic Conditional Correlation between Electricity and Stock markets during the Financial Crisis in Greece," Papers 1708.07063, arXiv.org.
    7. Jia, Jun-Jun & Xu, Jin-Hua & Fan, Ying, 2016. "The impact of verified emissions announcements on the European Union emissions trading scheme: A bilaterally modified dummy variable modelling analysis," Applied Energy, Elsevier, vol. 173(C), pages 567-577.
    8. Suzi Kerr & Judd Ormsby, 2016. "The New Zealand Emissions Trading Scheme de-link from Kyoto: impacts on banking and prices," Working Papers 16_13, Motu Economic and Public Policy Research.
    9. Creti, Anna & Jouvet, Pierre-André & Mignon, Valérie, 2012. "Carbon price drivers: Phase I versus Phase II equilibrium?," Energy Economics, Elsevier, vol. 34(1), pages 327-334.
    10. repec:gam:jeners:v:11:y:2018:i:4:p:706-:d:137313 is not listed on IDEAS
    11. Boersen, Arieke & Scholtens, Bert, 2014. "The relationship between European electricity markets and emission allowance futures prices in phase II of the EU (European Union) emission trading scheme," Energy, Elsevier, vol. 74(C), pages 585-594.
    12. repec:eee:enepol:v:107:y:2017:i:c:p:323-336 is not listed on IDEAS
    13. Beat Hintermann, 2014. "Pass-through of CO2 Emission Costs to Hourly Electricity Prices in Germany," CESifo Working Paper Series 4964, CESifo Group Munich.
    14. Claudia Kettner & Daniela Kletzan-Slamanig & Angela Köppl & Thomas Schinko & Andreas Türk, 2011. "ETCLIP – The Challenge of the European Carbon Market: Emission Trading, Carbon Leakage and Instruments to Stabilise the CO2 Price. Price Volatility in Carbon Markets: Why it Matters and How it Can be ," WIFO Working Papers 409, WIFO.
    15. Claudia Kettner & Daniela Kletzan-Slamanig & Angela Köppl, 2013. "The EU Emission Trading Scheme. Sectoral Allocation Patterns and Factors Determining Emission Changes," WIFO Working Papers 444, WIFO.
    16. Claudia Kettner & Daniela Kletzan-Slamanig & Angela Köppl, 2011. "ETCLIP – The Challenge of the European Carbon Market: Emission Trading, Carbon Leakage and Instruments to Stabilise the CO2 Price. The EU Emission Trading Scheme: Sectoral Allocation Patterns and the ," WIFO Working Papers 408, WIFO.
    17. Thoenes, Stefan, 2011. "Understanding the Determinants of Electricity Prices and the Impact of the German Nuclear Moratorium in 2011," EWI Working Papers 2011-6, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    18. Marc Gronwald & Janina Ketterer & Stefan Trück, 2011. "The Dependence Structure between Carbon Emission Allowances and Financial Markets - A Copula Analysis," CESifo Working Paper Series 3418, CESifo Group Munich.
    19. Nicolas Koch, 2014. "Dynamic linkages among carbon, energy and financial markets: a smooth transition approach," Applied Economics, Taylor & Francis Journals, vol. 46(7), pages 715-729, March.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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