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Rockets and feathers in power futures markets? Evidence from the second phase of the EU ETS

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  • Lo Prete, Chiara
  • Norman, Catherine S.

Abstract

This paper examines the possibility of asymmetric transmission of CO2 prices to electricity futures prices in the second phase of the European Emission Trading Scheme. We would like to assess whether output prices tend to respond more quickly to input price increases than decreases: this phenomenon is known as “rockets and feathers” in the literature. Compared to Zachmann and von Hirschhausen (2008), who carried out a similar analysis for Germany in the first phase of the Emission Trading Scheme with data from 2005 to 2006, our study spans a longer timeframe (July 2007–June 2010), with a presumably more mature permit market, and includes three additional European countries (France, Belgium and the Netherlands). Results do not provide empirical evidence of statistically significant differences in the response of power prices to positive and negative shocks in CO2 allowance and fuel markets.

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  • Lo Prete, Chiara & Norman, Catherine S., 2013. "Rockets and feathers in power futures markets? Evidence from the second phase of the EU ETS," Energy Economics, Elsevier, vol. 36(C), pages 312-321.
    • Handle: RePEc:eee:eneeco:v:36:y:2013:i:c:p:312-321
    DOI: 10.1016/j.eneco.2012.08.028
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    Cited by:

    1. Harrison Fell, Beat Hintermann, and Herman Vollebergh, 2015. "Carbon content of electricity futures in Phase II of the EU ETS," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    2. Linn, Joshua & Muehlenbachs, Lucija, 2018. "The heterogeneous impacts of low natural gas prices on consumers and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 89(C), pages 1-28.
    3. Chen, Yihsu & Zhang, Duan & Takashima, Ryuta, 2019. "Carbon emission forensic in the energy sector: Is it worth the effort?," Energy Policy, Elsevier, vol. 128(C), pages 868-878.
    4. Boersen, Arieke & Scholtens, Bert, 2014. "The relationship between European electricity markets and emission allowance futures prices in phase II of the EU (European Union) emission trading scheme," Energy, Elsevier, vol. 74(C), pages 585-594.
    5. 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.
    6. Liu, Feng & Lv, Tao & Meng, Yuan & Li, Cong & Hou, Xiaoran & Xu, Jie & Deng, Xu, 2023. "Potential analysis of BESS and CCUS in the context of China's carbon trading scheme toward the low-carbon electricity system," Renewable Energy, Elsevier, vol. 210(C), pages 462-471.
    7. Jiménez-Rodríguez, Rebeca, 2019. "What happens to the relationship between EU allowances prices and stock market indices in Europe?," Energy Economics, Elsevier, vol. 81(C), pages 13-24.
    8. Gavard, Claire & Kirat, Djamel, 2018. "Flexibility in the market for international carbon credits and price dynamics difference with European allowances," Energy Economics, Elsevier, vol. 76(C), pages 504-518.
    9. Fan, John Hua & Todorova, Neda, 2017. "Dynamics of China’s carbon prices in the pilot trading phase," Applied Energy, Elsevier, vol. 208(C), pages 1452-1467.
    10. Massimiliano Caporin & Fulvio Fontini & Samuele Segato, 2021. "Has the EU-ETS Financed the Energy Transition of the Italian Power System?," IJFS, MDPI, vol. 9(4), pages 1-15, December.
    11. Narayan, Paresh Kumar & Sharma, Susan Sunila, 2015. "Is carbon emissions trading profitable?," Economic Modelling, Elsevier, vol. 47(C), pages 84-92.
    12. Frieder Mokinski & Nikolas Wölfing, 2014. "The effect of regulatory scrutiny: Asymmetric cost pass-through in power wholesale and its end," Journal of Regulatory Economics, Springer, vol. 45(2), pages 175-193, April.
    13. Woo, C.K. & Chen, Y. & Olson, A. & Moore, J. & Schlag, N. & Ong, A. & Ho, T., 2017. "Electricity price behavior and carbon trading: New evidence from California," Applied Energy, Elsevier, vol. 204(C), pages 531-543.
    14. Woo, C.K. & Chen, Y. & Zarnikau, J. & Olson, A. & Moore, J. & Ho, T., 2018. "Carbon trading’s impact on California’s real-time electricity market prices," Energy, Elsevier, vol. 159(C), pages 579-587.
    15. Woo, C.K. & Olson, A. & Chen, Y. & Moore, J. & Schlag, N. & Ong, A. & Ho, T., 2017. "Does California's CO2 price affect wholesale electricity prices in the Western U.S.A.?," Energy Policy, Elsevier, vol. 110(C), pages 9-19.

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    More about this item

    Keywords

    Asymmetric pricing; CO2 prices; Power prices; Error Correction Model; European Emission Trading Scheme;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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