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Permit price dynamics in the U.S. SO2 trading program: A cointegration approach

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  • Boutabba, Mohamed Amine
  • Beaumais, Olivier
  • Lardic, Sandrine

Abstract

The aim of this paper is to study empirically the determination and the dynamic behavior of the SO2 permit prices. Previous research focused on ex-post market price analysis without taking weather conditions into account. Therefore, this study attempts to fill a gap in the literature by providing new empirical evidence on the SO2 price evolution and its interactions with macroeconomic variables, microeconomic variables and climate variables. Using monthly data from January 1995 to December 2006, our estimation results indicate the existence of a long-term relationship between SO2 permit price, scrubbing costs, industrial production, and weather conditions. In the short run, SO2 permit price is affected by scrubbing costs, energy prices, and weather conditions. Policy makers and private investors could benefit from the findings of this study that provides useful information on the characteristics of the SO2 market and may plan their strategy.

Suggested Citation

  • Boutabba, Mohamed Amine & Beaumais, Olivier & Lardic, Sandrine, 2012. "Permit price dynamics in the U.S. SO2 trading program: A cointegration approach," Energy Economics, Elsevier, vol. 34(3), pages 714-722.
  • Handle: RePEc:eee:eneeco:v:34:y:2012:i:3:p:714-722
    DOI: 10.1016/j.eneco.2011.04.004
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    References listed on IDEAS

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    Cited by:

    1. Li, Xu & Wu, Xiaole & Zhang, Fuqiang, 2015. "A method for analyzing pollution control policies: Application to SO2 emissions in China," Energy Economics, Elsevier, vol. 49(C), pages 451-459.

    More about this item

    Keywords

    SO2 emission permits; Price fundamentals;

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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