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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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    More about this item

    Keywords

    Cost pass-through; Emissions Trading Scheme; Refineries;
    All these keywords.

    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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