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Carbon content of electricity futures in Phase II of the EU ETS

Author

Listed:
  • Harrison Fell

    (Division of Economics and Business, Colorado School of Mines)

  • Beat Hintermann

    (University of Basel)

  • Herman Vollebergh

    (PBL Nethererlands Environmental Assessment Agency)

Abstract

We estimate the relationship between electricity, fuel and carbon prices in Germany, France, the Netherlands, the Nord Pool market and Spain, using one-year futures for base and peak load prices for the years 2009-2012, corresponding to physical settlement during the second market phase of the EU ETS. We employ a series of estimation methods that allow for an increasing interaction between electricity and input prices on the one hand, and between electricity markets on the other. The results vary by country due to different generation portfolios. Overall, we find that (a) carbon costs are passed through fully in most countries, and perhaps even by more than 100%; (b) under some model specifications, cost pass-through is similar during peak and during base load for France, Germany and the Netherlands; and (c) the results are sensitive to the degree of crosscommodity and cross-market interaction allowed. We further find that coal prices are negatively and gas prices are positively associated with allowance prices, although the latter effect is not statistically significant in all specifications.

Suggested Citation

  • Harrison Fell & Beat Hintermann & Herman Vollebergh, 2013. "Carbon content of electricity futures in Phase II of the EU ETS," Working Papers 2013-06, Colorado School of Mines, Division of Economics and Business.
    • Handle: RePEc:mns:wpaper:wp201306
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Beat Hintermann, 2016. "Pass-Through of CO2 Emission Costs to Hourly Electricity Prices in Germany," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(4), pages 857-891.
    2. Meleo, Linda, 2014. "On the determinants of industrial competitiveness: The European Union emission trading scheme and the Italian paper industry," Energy Policy, Elsevier, vol. 74(C), pages 535-546.
    3. Castagneto-Gissey, Giorgio, 2014. "How competitive are EU electricity markets? An assessment of ETS Phase II," Energy Policy, Elsevier, vol. 73(C), pages 278-297.
    4. Fields, Micah & Lindequist, David, 2024. "Global spillovers of US climate policy risk: Evidence from EU carbon emissions futures," Energy Economics, Elsevier, vol. 139(C).
    5. Yin Chu & J. Scott Holladay & Jacob LaRiviere, 2017. "Opportunity Cost Pass-through from Fossil Fuel Market Prices to Procurement Costs of the U.S. Power Producers," Working Papers 2017-02, University of Tennessee, Department of Economics.
    6. Vollebergh, Herman R.J. & Eric Drisse, Eric, "undated". "Unconventional Gas and the European Union: Prospects and Challenges for Competitiveness," Energy: Resources and Markets 196918, Fondazione Eni Enrico Mattei (FEEM).

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    More about this item

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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