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Cost pass-through of the EU emissions allowances: Examining the European petroleum markets

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  • Alexeeva-Talebi, Victoria

Abstract

This paper explores the ability of European refineries to pass-through costs associated with the introduction of the EU Emissions Trading Scheme (EU ETS). A sequence of vector error correction models (VECM) has been estimated within a multinational setting which covers 14 EU Member States. Using weekly data at the country level, this paper finds an influence of prices for European Union Allowances (EUAs) on unleaded petrol retail prices during the trial phase of the EU ETS from 2005 to 2007. The country-specific long-run elasticities of petrol prices with respect to the EUA prices are between 0.01 and 0.09. Given that these elasticities are of the same order of magnitude as the share of carbon allowances costs in total production costs in the refining industry, the estimates are consistent with the full pass-through potential. The variance decomposition analysis shows furthermore that a significant fraction of petrol price changes in Austria, Germany, France and Spain can be explained by changes in allowances prices (between 10% and 20%).

Suggested Citation

  • Alexeeva-Talebi, Victoria, 2011. "Cost pass-through of the EU emissions allowances: Examining the European petroleum markets," Energy Economics, Elsevier, vol. 33(S1), pages 75-83.
  • Handle: RePEc:eee:eneeco:v:33:y:2011:i:s1:p:s75-s83
    DOI: 10.1016/j.eneco.2011.07.029
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    Cited by:

    1. Koesler, Simon & Achtnicht, Martin & Köhler, Jonathan, 2012. "Capped steam ahead: A case study among ship operators on a maritime ETS," ZEW Discussion Papers 12-044, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Zhang, Zhong Xiang, 2012. "Competitiveness and Leakage Concerns and Border Carbon Adjustments," International Review of Environmental and Resource Economics, now publishers, vol. 6(3), pages 225-287, December.
    3. Teng, Fei & Wang, Xin & Zhiqiang, LV, 2014. "Introducing the emissions trading system to China’s electricity sector: Challenges and opportunities," Energy Policy, Elsevier, vol. 75(C), pages 39-45.
    4. Fan, Jin & Li, Jun & Wu, Yanrui & Wang, Shanyong & Zhao, Dingtao, 2016. "The effects of allowance price on energy demand under a personal carbon trading scheme," Applied Energy, Elsevier, vol. 170(C), pages 242-249.
    5. Frédéric Branger & Oskar Lecuyer & Philippe Quirion, 2013. "The European Union Emissions Trading System : should we throw the flagship out with the bathwater ?," Working Papers hal-00866408, HAL.
    6. repec:eee:eneeco:v:66:y:2017:i:c:p:140-146 is not listed on IDEAS
    7. Koesler, Simon & Achtnicht, Martin & Köhler, Jonathan, 2015. "Course set for a cap? A case study among ship operators on a maritime ETS," Transport Policy, Elsevier, vol. 37(C), pages 20-30.
    8. Malina, Robert & McConnachie, Dominic & Winchester, Niven & Wollersheim, Christoph & Paltsev, Sergey & Waitz, Ian A., 2012. "The impact of the European Union Emissions Trading Scheme on US aviation," Journal of Air Transport Management, Elsevier, vol. 19(C), pages 36-41.
    9. Frédéric Branger, Philippe Quirion, Julien Chevallier, 2017. "Carbon Leakage and Competitiveness of Cement and Steel Industries Under the EU ETS: Much Ado About Nothing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    10. Zhang, Yin-Fang & Gao, Ping, 2016. "Integrating environmental considerations into economic regulation of China's electricity sector," Utilities Policy, Elsevier, vol. 38(C), pages 62-71.
    11. Ruslan Lukach & Robert Marschinski & Dilyara Bakhtieva & Marian Mraz & Umed Temurshoev & Peter Eder & Luis Delgado Sancho, 2015. "EU Petroleum Refining Fitness Check: Impact of EU Legislation on Sectoral Economic Performance," JRC Working Papers JRC96206, Joint Research Centre (Seville site).
    12. Li, Ji Feng & Wang, Xin & Zhang, Ya Xiong & Kou, Qin, 2014. "The economic impact of carbon pricing with regulated electricity prices in China—An application of a computable general equilibrium approach," Energy Policy, Elsevier, vol. 75(C), pages 46-56.
    13. Frédéric Branger & Oskar Lecuyer & Philippe Quirion, 2013. "The European Union Emissions Trading System : should we throw the flagship out with the bathwater ?," CIRED Working Papers hal-00866408, HAL.

    More about this item

    Keywords

    Cost pass-through; Emissions Trading Scheme; Refineries;

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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