Asymmetric and nonlinear pass-through of energy prices to CO2 emission allowance prices
We use the recently developed nonlinear autoregressive distributed lags (NARDL) model to examine the pass-through of changes in crude oil prices, natural gas prices, coal prices and electricity prices to the CO2 emission allowance prices. This approach allows one to simultaneously test the short- and long-run nonlinearities through the positive and negative partial sum decompositions of the predetermined explanatory variables. It also offers the possibility to quantify the respective responses of the CO2 emission prices to positive and negative shocks to the prices of their determinants from the asymmetric dynamic multipliers. We find that: (i) the crude oil prices have a long-run negative and asymmetric effect on the CO2 allowance prices; (ii) the falls in the coal prices have a stronger impact on the carbon prices in the short-run than the increases; (iii) the natural gas prices and electricity prices have a symmetric effect on the carbon prices, but this effect is negative for the former and positive for the latter. Policy implications are provided.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|| Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal|
Phone: +351-253604510 ext 5532
Web page: http://www3.eeg.uminho.pt/economia/nipe/versao_inglesa/index_uk.htm
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-24, March.
- Ciarreta, Aitor & Espinosa, María Paz, 2012.
"The impact of regulation on pricing behavior in the Spanish electricity market (2002–2005),"
Elsevier, vol. 34(6), pages 2039-2045.
- Ciarreta Antuñano, Aitor & Espinosa Alejos, María Paz, 2010. "The Impact of Regulation on Pricing Behavior in the Spanish Electricity Market," DFAEII Working Papers 2010-08, University of the Basque Country - Department of Foundations of Economic Analysis II.
- Schennach, Susanne M., 2000. "The Economics of Pollution Permit Banking in the Context of Title IV of the 1990 Clean Air Act Amendments," Journal of Environmental Economics and Management, Elsevier, vol. 40(3), pages 189-210, November.
- Giliola Frey & Matteo Manera, 2007.
"Econometric Models Of Asymmetric Price Transmission,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 21(2), pages 349-415, 04.
- Matteo Manera & Giliola Frey, 2005. "Econometric Models of Asymmetric Price Transmission," Working Papers 2005.100, Fondazione Eni Enrico Mattei.
- Katrakilidis, Constantinos & Trachanas, Emmanouil, 2012. "What drives housing price dynamics in Greece: New evidence from asymmetric ARDL cointegration," Economic Modelling, Elsevier, vol. 29(4), pages 1064-1069.
- 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.
- Benz, Eva & Trück, Stefan, 2009. "Modeling the price dynamics of CO2 emission allowances," Energy Economics, Elsevier, vol. 31(1), pages 4-15, January.
- Zivot, Eric & Andrews, Donald W K, 1992.
"Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 10(3), pages 251-70, July.
- Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
- Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
- Tom Doan, . "ZIVOT: RATS procedure to perform Zivot-Andrews Unit Root Test," Statistical Software Components RTS00236, Boston College Department of Economics.
- Beat Hintermann, 2009.
"Allowance Price Drivers in the First Phase of the EU ETS,"
CEPE Working paper series
09-63, CEPE Center for Energy Policy and Economics, ETH Zurich.
- Hintermann, Beat, 2010. "Allowance price drivers in the first phase of the EU ETS," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 43-56, January.
- Chevallier, Julien, 2010. "Modelling risk premia in CO2 allowances spot and futures prices," Economic Modelling, Elsevier, vol. 27(3), pages 717-729, May.
- Peter Romilly & Haiyan Song & Xiaming Liu, 2001. "Car ownership and use in Britain: a comparison of the empirical results of alternative cointegration estimation methods and forecasts," Applied Economics, Taylor & Francis Journals, vol. 33(14), pages 1803-1818.
- Kim, Hyun Seok & Koo, Won W., 2010. "Factors affecting the carbon allowance market in the US," Energy Policy, Elsevier, vol. 38(4), pages 1879-1884, April.
- Rittler, Daniel, 2012. "Price discovery and volatility spillovers in the European Union emissions trading scheme: A high-frequency analysis," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 774-785.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Daskalakis, George & Psychoyios, Dimitris & Markellos, Raphael N., 2009. "Modeling CO2 emission allowance prices and derivatives: Evidence from the European trading scheme," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1230-1241, July.
- Wang, Yafei & Zhao, Hongyan & Li, Liying & Liu, Zhu & Liang, Sai, 2013. "Carbon dioxide emission drivers for a typical metropolis using input–output structural decomposition analysis," Energy Policy, Elsevier, vol. 58(C), pages 312-318.
- Schleich, Joachim & Ehrhart, Karl-Martin & Hoppe, Christian & Seifert, Stefan, 2004.
"Banning banking in EU emissions trading?,"
Sonderforschungsbereich 504 Publications
04-60, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Christoph Böhringer & Andreas Lange, 2005. "Economic Implications of Alternative Allocation Schemes for Emission Allowances," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(3), pages 563-581, 09.
- Engle, Robert & Granger, Clive, 2015.
"Co-integration and error correction: Representation, estimation, and testing,"
Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
- Hammoudeh, Shawkat & Nguyen, Duc Khuong & Sousa, Ricardo M., 2014.
"What explain the short-term dynamics of the prices of CO2 emissions?,"
Elsevier, vol. 46(C), pages 122-135.
- Shawkat Hammoudeh & Duc Khuong Nguyen & Ricardo M. Sousa, . "What explains the short-term dynamics of the prices of CO2 emissions?," NIPE Working Papers 04/2014, NIPE - Universidade do Minho.
- Stephen P. A. Brown & Mine K. Yücel, 2000. "Gasoline and crude oil prices: why the asymmetry?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q3, pages 23-29.
- Arouri, Mohamed El Hédi & Jawadi, Fredj & Nguyen, Duc Khuong, 2012. "Nonlinearities in carbon spot-futures price relationships during Phase II of the EU ETS," Economic Modelling, Elsevier, vol. 29(3), pages 884-892.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- Ellerman, A. Denny & Montero, Juan-Pablo, 1998. "The Declining Trend in Sulfur Dioxide Emissions: Implications for Allowance Prices," Journal of Environmental Economics and Management, Elsevier, vol. 36(1), pages 26-45, July.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
When requesting a correction, please mention this item's handle: RePEc:nip:nipewp:05/2014. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maria João Thompson)
If references are entirely missing, you can add them using this form.