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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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File URL: http://economix.fr/pdf/dt/2008/WP_EcoX_2008-12.pdf
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Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2008-12.

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Length: 37 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:drm:wpaper:2008-12
Contact details of provider: Postal: 200 Avenue de la République, Bât. G - 92001 Nanterre Cedex
Web page: http://economix.fr
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  1. Demailly, Damien & Quirion, Philippe, 2008. "European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry," Energy Economics, Elsevier, vol. 30(4), pages 2009-2027, July.
  2. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  3. Junsoo Lee & Mark C. Strazicich, 2004. "Minimum LM Unit Root Test with One Structural Break," Working Papers 04-17, Department of Economics, Appalachian State University.
  4. Stephen P. A. Brown & Mine K. Yucel, 2008. "What Drives Natural Gas Prices?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 45-60.
  5. A. C. Christiansen & A. Arvanitakis & K. Tangen & H. Hasselknippe, 2005. "Price determinants in the EU emissions trading scheme," Climate Policy, Taylor & Francis Journals, vol. 5(1), pages 15-30, January.
  6. Gourieroux Christian & Monfort Alain & Trognon A, 1981. "Pseudo maximum likelihood methods : theory," CEPREMAP Working Papers (Couverture Orange) 8129, CEPREMAP.
  7. Szymon Borak & Wolfgang Härdle & Stefan Trück & Rafal Weron, 2006. "Convenience Yields for CO2 Emission Allowance Futures Contracts," SFB 649 Discussion Papers SFB649DP2006-076, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  8. Seifert, Jan & Uhrig-Homburg, Marliese & Wagner, Michael, 2008. "Dynamic behavior of CO2 spot prices," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 180-194, September.
  9. Noll, Roger G, 1982. "Implementing Marketable Emissions Permits," American Economic Review, American Economic Association, vol. 72(2), pages 120-24, May.
  10. Diakoulaki, D. & Mandaraka, M., 2007. "Decomposition analysis for assessing the progress in decoupling industrial growth from CO2 emissions in the EU manufacturing sector," Energy Economics, Elsevier, vol. 29(4), pages 636-664, July.
  11. Liaskas, K. & Mavrotas, G. & Mandaraka, M. & Diakoulaki, D., 2000. "Decomposition of industrial CO2 emissions:: The case of European Union," Energy Economics, Elsevier, vol. 22(4), pages 383-394, August.
  12. Springer, Urs, 2003. "The market for tradable GHG permits under the Kyoto Protocol: a survey of model studies," Energy Economics, Elsevier, vol. 25(5), pages 527-551, September.
  13. Emilie Alberola & Julien Chevallier, 2009. "European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007)," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 51-80.
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