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Exchange rate effect on carbon credit price via energy markets

Listed author(s):
  • Yu, Jongmin
  • Mallory, Mindy L.

This paper examines the impact of currency exchange rates on the carbon market. We scrutinize this effect through the European Union Emission Trading Scheme (EU-ETS), which primarily uses two substitutable fossil energy inputs for the generation of electricity: coal and natural gas. The European coal market is directly driven by global coal markets that are denominated in USD, whereas, natural gas is mainly imported from Russia and is denominated in Euros. The impulse response functions of a Structural Vector Autoregression (SVAR) model demonstrate that a shock in the Euro/USD exchange rate can be transmitted through the channel of energy substitution between coal and natural gas, and influence on the carbon credit market.

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File URL: http://www.sciencedirect.com/science/article/pii/S0261560614000771
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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 47 (2014)
Issue (Month): C ()
Pages: 145-161

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Handle: RePEc:eee:jimfin:v:47:y:2014:i:c:p:145-161
DOI: 10.1016/j.jimonfin.2014.04.010
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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