The impact of the European Union emission trading scheme on the electricity-generation sector
In order to comply with their commitments under the Kyoto Protocol, France and Germany participate in the European Union Emission Trading Scheme (EU ETS) which predominantly concerns the electricity-generation sectors. In this paper we ask whether the EU ETS provides the appropriate economic incentives to produce an efficient system in line with the Kyoto commitments. If so, electricity producers in the countries concerned should include the price of carbon in their cost functions. After identifying different sub-periods of the EU ETS during its pilot phase (2005-2007), we model the prices of various electricity contracts in France and Germany and look at the volatility of electricity prices around their fundamentals while evaluating the correlation between 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 the EU ETS. Over this period, German electricity producers were more constrained than their French counterparts, and the inclusion of the carbon price in the electricity-generation cost function was much more stable in Germany than in France. We also find evidence of fuel switching in electricity generation in Germany after the collapse of the carbon market. Furthermore, the European market for emission allowances has greatly contributed to the partial alignment of the wholesale price of electricity in France to that in Germany.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tomoaki Nakatani & Timo Terasvirta, 2009.
"Testing for volatility interactions in the Constant Conditional Correlation GARCH model,"
Royal Economic Society, vol. 12(1), pages 147-163, 03.
- Nakatani, Tomoaki & Teräsvirta, Timo, 2007. "Testing for Volatility Interactions in the Constant Conditional Correlation GARCH Model," SSE/EFI Working Paper Series in Economics and Finance 649, Stockholm School of Economics, revised 24 Jan 2007.
- Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006.
"Multivariate GARCH models: a survey,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
- BAUWENS, Luc & LAURENT, Sébastien & ROMBOUTS, Jeroen VK, . "Multivariate GARCH models: a survey," CORE Discussion Papers RP -1847, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- 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).
- Ahamada, Ibrahim & Flachaire, Emmanuel, 2010. "Non-Parametric Econometrics," OUP Catalogue, Oxford University Press, number 9780199578009, March.
- Engle, Robert F & Sheppard, Kevin K, 2001.
"Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH,"
University of California at San Diego, Economics Working Paper Series
qt5s2218dp, Department of Economics, UC San Diego.
- Robert F. Engle & Kevin Sheppard, 2001. "Theoretical and Empirical properties of Dynamic Conditional Correlation Multivariate GARCH," NBER Working Papers 8554, National Bureau of Economic Research, Inc.
- Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
- Clemente, Jesus & Montanes, Antonio & Reyes, Marcelo, 1998. "Testing for a unit root in variables with a double change in the mean," Economics Letters, Elsevier, vol. 59(2), pages 175-182, May.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Alberola, Emilie & Chevallier, Julien & Cheze, Benoi^t, 2008. "Price drivers and structural breaks in European carbon prices 2005-2007," Energy Policy, Elsevier, vol. 36(2), pages 787-797, February.
- Derek W. Bunn & Carlo Fezzi, 2007. "Interaction of European Carbon Trading and Energy Prices," Working Papers 2007.63, Fondazione Eni Enrico Mattei.
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:33:y:2011:i:5:p:995-1003. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.