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Emissions Compliances and Carbon Prices under the EU ETS: A Country Specific Analysis of Industrial Sectors

  • Chèze, Benoît
  • Chevallier, Julien
  • Alberola, Emilie

This article critically examines the impact of industrial production for sectors covered by the EU Emissions Trading Scheme (EU ETS) on emissions allowance spot prices during Phase I (2005-2007). We find evidence that the effect of industrial production activity on EU carbon price changes shall be analysed in conjunction with production peaks and compliance net short/long positions. The results extend previous literature by showing that carbon price changes react not only to energy prices forecast errors and extreme temperature events, but also to industrial production in two sectors covered by the EU ETS: combustion and iron. Based on a country-specific analysis, after disentangling the effects of industrial production peaks and CO2 emissions compliance at the EU 24 level, we capture the effects of the variation of industrial production on EU carbon price changes in Germany, Poland, Spain and the UK.

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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/4224.

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Date of creation: May 2009
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Publication status: Published in Journal of Policy Modeling, 2009, Vol. 31, no. 3. pp. 446-462.Length: 16 pages
Handle: RePEc:dau:papers:123456789/4224
Contact details of provider: Web page: http://www.dauphine.fr/en/welcome.html
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  1. Junsoo Lee & Mark Strazicich, 2001. "Testing the null of stationarity in the presence of a structural break," Applied Economics Letters, Taylor & Francis Journals, vol. 8(6), pages 377-382.
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  4. Stephen P. A. Brown & Mine K. Yücel, 2007. "What drives natural gas prices?," Working Papers 0703, Federal Reserve Bank of Dallas.
  5. Maria Mansanet-Bataller & Angel Pardo & Enric Valor, 2007. "CO2 Prices, Energy and Weather," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 73-92.
  6. Junsoo Lee & Mark C. Strazicich, 2003. "Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1082-1089, November.
  7. Zakoian, Jean-Michel, 1994. "Threshold heteroskedastic models," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 931-955, September.
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  9. Emilie Alberola & Benoît Chèze & Julien Chevallier, 2008. "The EU Emissions Trading Scheme : Disentangling the Effects of Industrial Production and CO2 Emissions on Carbon Prices," EconomiX Working Papers 2008-12, University of Paris West - Nanterre la Défense, EconomiX.
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