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The EU Emissions Trading Scheme : Disentangling the Effects of Industrial Production and CO2 Emissions on Carbon Prices


  • Emilie Alberola
  • Benoît Chèze
  • Julien Chevallier


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). Using sector production indices and CO2 emissions compliance positions dened by a ratio of allowance allocation relative to baseline emissions, we show that the effect of industrial activity on EU carbon price changes shall be analysed in conjunction with production peaks and compliance net short/long positions at the sector level. The results extend previous literature by showing that carbon price changes react not only to energy prices forecast errors and extreme temperatures events, but also to industrial production in three sectors covered by the EU ETS: combustion, paper and iron.

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  • 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 Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2008-12

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    References listed on IDEAS

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    Cited by:

    1. Oberndorfer, Ulrich, 2008. "EU Emission Allowances and the Stock Market: Evidence from the Electricity Industry," ZEW Discussion Papers 08-059, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Gary Koop & Lise Tole, 2013. "Forecasting the European carbon market," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 176(3), pages 723-741, June.
    3. Koop, Gary & Tole, Lise, 2013. "Modeling the relationship between European carbon permits and certified emission reductions," Journal of Empirical Finance, Elsevier, vol. 24(C), pages 166-181.
    4. Gil-Alana, Luis A. & Gupta, Rangan & de Gracia, Fernando Perez, 2016. "Modeling persistence of carbon emission allowance prices," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 221-226.
    5. Rittler, Daniel, 2009. "Price Discovery, Causality and Volatility Spillovers in European Union Allowances Phase II: A High Frequency Analysis," Working Papers 0492, University of Heidelberg, Department of Economics.
    6. Creti, Anna & Jouvet, Pierre-André & Mignon, Valérie, 2012. "Carbon price drivers: Phase I versus Phase II equilibrium?," Energy Economics, Elsevier, vol. 34(1), pages 327-334.
    7. Oberndorfer, Ulrich, 2009. "EU Emission Allowances and the stock market: Evidence from the electricity industry," Ecological Economics, Elsevier, vol. 68(4), pages 1116-1126, February.
    8. Segnon, Mawuli & Lux, Thomas & Gupta, Rangan, 2017. "Modeling and forecasting the volatility of carbon dioxide emission allowance prices: A review and comparison of modern volatility models," Renewable and Sustainable Energy Reviews, Elsevier, vol. 69(C), pages 692-704.
    9. Alberola, Emilie & Chevallier, Julien & Chèze, Benoît, 2009. "Emissions Compliances and Carbon Prices under the EU ETS: A Country Specific Analysis of Industrial Sectors," Journal of Policy Modeling, Elsevier, vol. 31(3), pages 446-462, May.
    10. Julien Chevallier & Stéphane Goutte, 2014. "The goodness-of-fit of the fuel-switching price using the mean-reverting Lévy jump process," Working Papers 2014-285, Department of Research, Ipag Business School.
    11. Wen, Xiaoqian & Bouri, Elie & Roubaud, David, 2017. "Can energy commodity futures add to the value of carbon assets?," Economic Modelling, Elsevier, vol. 62(C), pages 194-206.
    12. Koch, Nicolas & Fuss, Sabine & Grosjean, Godefroy & Edenhofer, Ottmar, 2014. "Causes of the EU ETS price drop: Recession, CDM, renewable policies or a bit of everything?—New evidence," Energy Policy, Elsevier, vol. 73(C), pages 676-685.
    13. Zhi-Fu Mi & Yue-Jun Zhang, 2011. "Estimating the 'value at risk' of EUA futures prices based on the extreme value theory," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 35(2/3/4), pages 145-157.
    14. Don BREDIN & Cal MUCKLEY, 2010. "Is There a Stochastic Trend in European Union Emission Trading Scheme Prices?," Sosyoekonomi Journal, Sosyoekonomi Society, issue 2010-EN.
    15. Zhang, Yue-Jun & Wei, Yi-Ming, 2010. "An overview of current research on EU ETS: Evidence from its operating mechanism and economic effect," Applied Energy, Elsevier, vol. 87(6), pages 1804-1814, June.
    16. Balietti, Anca Claudia, 2016. "Trader types and volatility of emission allowance prices. Evidence from EU ETS Phase I," Energy Policy, Elsevier, vol. 98(C), pages 607-620.
    17. Cong, Ren & Lo, Alex Y., 2017. "Emission trading and carbon market performance in Shenzhen, China," Applied Energy, Elsevier, vol. 193(C), pages 414-425.
    18. Clò, Stefano & Battles, Susan & Zoppoli, Pietro, 2013. "Policy options to improve the effectiveness of the EU emissions trading system: A multi-criteria analysis," Energy Policy, Elsevier, vol. 57(C), pages 477-490.
    19. Julien Chevallier, 2013. "Carbon trading: past, present and future," Chapters,in: Handbook on Energy and Climate Change, chapter 21, pages 471-489 Edward Elgar Publishing.
    20. Julien Chevallier & Johanna Etner & Pierre-André Jouvet, 2008. "Bankable Pollution Permits under Uncertainty and Optimal Risk Management Rules: Theory and Empirical Evidence," EconomiX Working Papers 2008-25, University of Paris Nanterre, EconomiX.

    More about this item


    EU ETS; Emissions Trading; Carbon Pricing; CO2 Emissions; Industrial Production;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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