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An overview of CO2 cost pass-through to electricity prices in Europe


  • Boris Solier

    (Paris-Dauphine University (LEDa-CGEMP) and Climate Economics Chair.)

  • Pierre-André Jouvet

    (EconomiX-CNRS, University of Paris Ouest, and Climate Economics Chair)


This paper investigates the link between wholesale electricity prices in Europe and the CO2 cost, i.e. the price of European Union Allowances (EUAs), over the two first phases of the European Union Emissions Trading Scheme (EU ETS). We set up a theoretical framework and an empirical model to estimate to what extent daily fluctuations of CO2 costs may have impacted electricity prices. Regarding estimation results for the first phase of the EU ETS, about 42% of estimated pass-through rates appear to be statistically significant, while only one third of them are statistically different from zero in the second phase. We try to improve those results by proposing alternative estimates based on the EU ETS compliance periods.

Suggested Citation

  • Boris Solier & Pierre-André Jouvet, 2011. "An overview of CO2 cost pass-through to electricity prices in Europe," Working Papers 1108, Chaire Economie du climat.
  • Handle: RePEc:cec:wpaper:1108

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    References listed on IDEAS

    1. Bréchet, Thierry & Jouvet, Pierre-André, 2009. "Why environmental management may yield no-regret pollution abatement options," Ecological Economics, Elsevier, vol. 68(6), pages 1770-1777, April.
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    Cited by:

    1. 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.
    2. Sebastian Wehrle & Johannes Schmidt, 2016. "Optimal emission prices for a district heating system owner," Working Papers 642016, Institute for Sustainable Economic Development, Department of Economics and Social Sciences, University of Natural Resources and Life Sciences, Vienna.
    3. O'Mahoney, Amy & Denny, Eleanor, 2013. "Electricity prices and generator behaviour in gross pool electricity markets," Energy Policy, Elsevier, vol. 63(C), pages 628-637.
    4. Huisman, Ronald & Kiliç, Mehtap, 2015. "Time variation in European carbon pass-through rates in electricity futures prices," Energy Policy, Elsevier, vol. 86(C), pages 239-249.
    5. 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.
    6. Park, Hojeong & Hong, Won Kyung, 2014. "Korea׳s emission trading scheme and policy design issues to achieve market-efficiency and abatement targets," Energy Policy, Elsevier, vol. 75(C), pages 73-83.
    7. repec:eee:eneeco:v:66:y:2017:i:c:p:140-146 is not listed on IDEAS
    8. Renner, Marie, 2014. "Carbon prices and CCS investment: A comparative study between the European Union and China," Energy Policy, Elsevier, vol. 75(C), pages 327-340.
    9. Freitas, Carlos J. Pereira & Silva, Patrícia Pereira da, 2015. "European Union emissions trading scheme impact on the Spanish electricity price during phase II and phase III implementation," Utilities Policy, Elsevier, vol. 33(C), pages 54-62.
    10. Pawel Maryniak & Stefan Trueck & Rafal Weron, 2016. "Carbon pricing, forward risk premiums and pass-through rates in Australian electricity futures markets," HSC Research Reports HSC/16/10, Hugo Steinhaus Center, Wroclaw University of Technology.
    11. Tim Laing & Misato Sato & Michael Grubb & Claudia Comberti, 2013. "Assessing the effectiveness of the EU Emissions Trading System," GRI Working Papers 106, Grantham Research Institute on Climate Change and the Environment.
    12. Marie Renner, 2014. "Carbon prices and CCS investment: comparative study between the European Union and China," Working Papers 1402, Chaire Economie du climat.
    13. Cotton, Deborah & De Mello, Lurion, 2014. "Econometric analysis of Australian emissions markets and electricity prices," Energy Policy, Elsevier, vol. 74(C), pages 475-485.

    More about this item


    EU ETS; CO2 cost pass-through; Electricity spot markets;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G1 - Financial Economics - - General Financial Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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