causalities between co2 electricity and other energy variables during phase i and phase ii of the eu ets the topic of this article is the analysis of the interplay between daily carbon electricity and gas price data with the european union emission trading system eu ets for co2 emissions in a first step we have performed granger causality tests for phase i of the eu ets january 2005 until december 2007 and the first year of phase ii of the eu ets 2008 the analysis includes both spot and forward markets given the close interactions between the two sets of markets the results show that during phase i coal and gas prices through the clean dark and spark spread impacted co2 futures prices which in return granger caused electricity prices during the first year of the phase ii the short run rent capture theory in which electricity prices granger cause co2 prices prevailed on the basis of the qualitative results of the granger causality tests we obtained the formulation testable equations for quantitative analysis standard ols regressions yielded statistically robust and theoretically coherent results

price determination in the eu ets market theory and econometric analysis with market fundamentals abstract we investigate the price determination of the european union emission allowance eua of the european union emissions trading scheme eu ets we postulate an uncertain permit price and risk averse firms which have the possibility to hedge in the forward market the firms produce final goods abate their emissions and trade permits in the permit market the dependence of the equilibrium permit price on exogenous variables is studied in a permit market model we test our theoretical findings with empirical data from 2005 to 2010 in the eu ets market we use daily forward prices of eua as our dependent variable we use several econometric models with multiple stationary time series to discover that there is a strong relationship between the fundamentals such as german electricity prices and gas and coal prices with the price of eua we find that the eua forward price depends on fundamentals especially on the price of electricity as well as on the gas coal difference in a statistically significant way

speculative and hedging activities in the european carbon market abstract we explore the dynamics of the speculative and hedging activities in european futures carbon markets by using volume and open interest data a comparison of the three phases in the european union emission trading scheme eu ets reveals that i phase ii of the eu ets seems to be the most speculative phase to date and ii the highest degree of speculative activity for every single phase occurs at the moment of listing the contracts for the first time a seasonality analysis identifies a higher level of speculation in the first quarter of each year related to the schedule of deadlines of the eu ets in addition a time series analysis confirms that most of the speculative activity each year occurs in the front contract whereas the hedging demand concentrates in the second to deliver futures contract

what explains the short term dynamics of the prices of co2 emissions using the vector auto regression var and the vector error correction models vecm this paper analyzes the short term dynamics of the prices of co2 emissions in response to changes in the prices of oil coal natural gas electricity and carbon emission allowances the results show that i a positive shock to the crude oil prices has a negative effect on the co2 allowance prices ii an unexpected increase in the natural gas prices raises the price of co2 emissions iii a positive shock to the prices of the fuel of choice coal has virtually no significant impact on the co2 prices iv there is a clear positive effect of the coal prices on the co2 allowance prices when the electricity prices are excluded from the var system and v a positive shock to the electricity prices reduces the price of the co2 allowances we also find that the energy price shocks have a persistent impact on the co2 allowance prices with the largest effect occurring six months after a shock strikes the effect is particularly strong in the case of the natural gas price shocks additionally we estimate that it takes between 7 3 and 9 6 months to halve the gap between the actual and the equilibrium prices of the co2 allowances i e to erase any price over or undervaluations after a shock strikes finally the empirical findings suggest an important degree of substitution between the three primary sources of energy i e crude oil natural gas and coal particularly when electricity prices are excluded from the var system

how competitive are eu electricity markets an assessment of ets phase ii this paper studies the interactions between electricity and carbon allowance prices in the year ahead energy markets of france germany united kingdom and the nordic countries during phase ii of the eu ets var and granger causality methods are used to analyze causal interfaces whereas the volatility of electricity prices is studied with basic and asymmetric ar garch models among the main results the marginal rate at which carbon prices feed into electricity prices is shown to be ca 135 in the eex and nord pool markets where electricity and carbon prices display bidirectional causality and 109 in the uk therefore generators in these markets internalized the cost of freely allotted emission allowances into their electricity prices considerably more than the proportionate increase in costs justified by effective carbon intensity moreover electricity prices in france are found to granger cause the carbon price this study also shows how european electricity prices are deeply linked to coal prices among other factors both in terms of levels and volatility regardless of the underlying fuel mix and that coal was marginally more profitable than gas for electricity generation eu policies aimed at increasing the carbon price are likely to be crucial in limiting the externalities involved in the transition to a low carbon system

firm specific impacts of co2 prices on the stock market value of the spanish power industry abstract european union carbon emissions allowances eua price fluctuations can affect electricity companies stock market values as these oscillations may change firms profitability and thus investors decisions this outcome can differ not only contingent on the eu ets phase but also on firms generation mix moreover stock markets may react differently to eua increases in comparison to decreases thus asymmetrically by using daily data from january 2008 to july 2014 this article analyses long run equilibrium relations and short run interactions between the aggregated electricity industry stock market returns and eua price changes moreover we test if the relationship between eua price variations and electricity stock returns is asymmetric and if the carbon price effect and the asymmetry are power firm specific adding to earlier studies we initially provide an inspection of the individual impact of eu ets phase ii and on going phase iii followed by a comparative analysis between power firms which core activity relies on renewable energy sources and those whose sources are fundamentally non renewable ones a statistically significant positive long run impact of eu ets on the aggregated power sector stock market return is found concerning phase ii and works asymmetrically moreover evidence is provided demonstrating that asymmetry and eua effects are power firm specific

the contribution of foreign direct investment to clean energy use carbon emissions and economic growth the paper investigates the contributions of foreign direct investment fdi net inflows to clean energy use carbon emissions and economic growth the paper employs cointegration tests to examine a long run equilibrium relationship among the variables and fixed effects models to examine the magnitude of fdi contributions to the other variables the paper analyzes panel data of 19 nations of the g20 from 1971 to 2009 the test results indicate that fdi has played an important role in economic growth for the g20 whereas it limits its impact on an increase in co2 emissions in the economies the research finds no compelling evidence of fdi link with clean energy use given the results the paper discusses fdi s potential role in achieving green growth goals

rockets and feathers in power futures markets evidence from the second phase of the eu ets abstract this paper examines the possibility of asymmetric transmission of co 2 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 co 2 allowance and fuel markets

a necessary condition for decentralization and an application to intertemporal allocation abstract a necessary condition for realization by a decentralized finite dimensional mechanism is proved the concepts of the realization of a time sequence of allocations by a decentralized temporal process and by the particular more realistic class of decentralized evolutionary temporal processes are defined the above condition shows that the optimal allocation in a simple model for intertemporal production and consumption can be realized by a decentralized temporal process but not by a decentralized evolutionary process which uses either a finite number of verification conditions or a finite dimensional message space

price drivers and structural breaks in european carbon prices 2005 2007 this article aims at characterizing the daily price fundamentals of european union allowances euas traded since 2005 as part of the emissions trading scheme ets the presence of two structural changes on april 2006 following the disclosure of 2005 verified emissions and on october 2006 following the european commission announcement of stricter phase ii allocation allows to isolate distinct fundamentals evolving overtime the results extend previous literature by showing that eua spot prices react not only to energy prices with forecast errors but also to unanticipated temperatures changes during colder events besides the sub period decomposition of the pilot phase gives a better grasp of institutional and market events that drive allowance price changes

information linkage dynamic spillovers in prices and volatility between the carbon and energy markets abstract the european union emissions trading system eu ets has strengthened the information flow and connection between carbon market and energy markets which makes the carbon energy system more complicated this paper investigates information linkages and dynamic spillover effects between the carbon and energy markets we adopt a systemic time series approach to study connectedness in both returns and volatility in the carbon energy system moreover a rolling windows method is used to show the dynamic features empirical results show that brent oil prices play an important role in affecting carbon price changes and risks feedback exists from the carbon market to other energy markets and electricity prices are shown to be the biggest information receiver in the system it is also shown that the level of connectedness in the volatility system is substantially higher than that in the returns system our results can provide useful implications for policymakers to design market mechanisms and market investors to manage their portfolios

dynamic multiscale interactions between european carbon and electricity markets during 2005 2016 this study explores the dynamic multiscale interactions between carbon and electricity markets during phases i 2005 2007 ii 2008 2012 and ongoing iii 2013 2016 by introducing the bivariate empirical mode decomposition bemd linear and nonlinear granger causality tests firstly bemd is used to decompose the european carbon and electricity prices into several pairs of simple modes with different timescales secondly causality tests are performed at each pair of modes with a similar timescale significant but asymmetric causalities can be found that the bidirectional linear causality turns to a unidirectional one running from the electricity price to the carbon price from phase i to phase iii whereas the nonlinear interaction enhances from insignificance to significance during the three phases the causality at short timescale is consistent with that of the original data while the causalities at mid and long timescales are more diversified the findings obtained show that the effect of carbon market on the electricity market is weakening which indicates that it is needed to increase its efficiency by raising the carbon price moreover a dynamic adjusting mechanism of emission allowances will be called for as well as the guidance aimed at different timescales in the future

what happens to the relationship between eu allowances prices and stock market indices in europe abstract the stock market may reflect the economic conditions of an economy and a positive economic situation is expected to improve the companies profits which makes company shares more attractive since the expected dividends to shareholders will be larger theoretically higher economic activity leads to higher energy demand and consequently higher carbon emissions which give rise to higher eu allowances eua prices therefore the stock market and eua prices seem to be connected with causality going from the stock markets to eua prices this paper formally tests for it showing that the causality effectively runs from the stock market to the european climate exchange market furthermore the paper studies the effects of the evolution of european stock markets on the eua spot prices

modeling the price dynamics of co2 emission allowances abstract in this paper we analyze the short term spot price behavior of carbon dioxide co 2 emission allowances of the new eu wide co 2 emissions trading system eu ets after reviewing the stylized facts of this new class of assets we investigate several approaches for modeling the returns of emission allowances due to different phases of price and volatility behavior in the returns we suggest the use of markov switching and ar garch models for stochastic modeling we examine the approaches by conducting an in sample and out of sample forecasting analysis and by comparing the results to alternative approaches our findings strongly support the adequacy of the models capturing characteristics like skewness excess kurtosis and in particular different phases of volatility behavior in the returns

a multiscale analysis for carbon price drivers abstract this study proposes a multiscale analysis model to explore and identify the carbon price drivers at different timescales by introducing the latest multivariate empirical mode decomposition carbon price and its potential drivers are decomposed into several groups of simple modes with specific economic meanings the cointegration techniques error correction model and newey west estimator are combined to capture the carbon price drivers at similar timescales illustrated by the samples of the european union emissions trading system from 2009 to 2016 a few interesting results can be found that at the original data level among the three most important drivers of carbon price electricity price and stock index show positive impacts while coal price shows a negative impact at different timescales the effects of electricity and stock index appear comparatively earlier which drive carbon price from the short timescales and continue to strengthen however the impacts of coal oil and gas prices are lagging behind which respectively drive the carbon price at the medium and long timescales

carbon price drivers phase i versus phase ii equilibrium abstract the aim of this paper is to investigate the determinants of the carbon price during the two phases of the european union emission trading scheme eu ets more specifically relying on daily eu allowance futures contracts we test whether the carbon price drivers identified for phase i still hold for phase ii and evolve toward a long run relationship using cointegration techniques and accounting for the 2006 structural break in the carbon market we show that while a cointegrating relationship exists for both phases of the eu ets the nature of this equilibrium relationship is different across the two subperiods with an increasing role of fundamentals in phase ii deriving equilibrium values we show that the carbon price tends to be undervalued since the end of 2009

causal relationships between energy consumption foreign direct investment and economic growth fresh evidence from dynamic simultaneous equations models this paper examines the interrelationships between energy consumption foreign direct investment and economic growth using dynamic panel data models in simultaneous equations for a global panel consisting of 65 countries the time component of our dataset is 1990 2011 inclusive to make the panel data analysis more homogenous we also investigate this interrelationship for a number of sub panels which are constructed based on the income level of countries in this way we end up with three income panels namely high income middle income and low income panels in the empirical part we draw on the growth theory and augment the classical growth model which consists of capital stock labor force and inflation with foreign direct investment and energy generally we show mixed results about the interrelationship between energy consumption fdi and economic growth

tax induced clientele effects in the market for british government securities abstract this paper develops a new methods for measuring tax effects in bond markets and presents empirical results for british government securities the basic idea is to construct a least cost portfolio which for investors in a given tax bracket dominates a given bond a portfolio is said to dominate a bond if it provides cash flows which are at least as great in every period and has a lower price in effect our method calculates an upper bound on the value of a bond to investors in a given tax bracket the results demonstrate i the existence of clientele effects and ii the absence of an effective tax rate

trader types and volatility of emission allowance prices evidence from eu ets phase i abstract this paper studies the relation between the trading activity of market participants and the volatility of the european emission allowance price during phase i of the european union emission trading system eu ets we focus on the contrasting roles of different trader types we find evidence of a positive and significant trading activity volatility relation which appears to be stronger when accounting for trader type the positive relation can be mainly attributed to energy providers in contrast industrial companies seem to have traded more frequently when volatility levels were lower finally the non liable players represented by financial intermediaries appear to have acted as a flexible counterparty trading more with the energy sector when volatility was higher and more with the industrial firms when volatility was lower we discuss possible explanations for these contrasted positions understanding the trading activity volatility link is relevant for evaluating the efficiency of the eu ets although the relation is generally positive many players remained often inactive and traded mostly when volatility levels were lower policies targeting the engagement of less active players could lead to a smoother incorporation of information into prices and to an increase in market efficiency

modeling and forecasting the volatility of carbon dioxide emission allowance prices a review and comparison of modern volatility models abstract the launch of the markets for carbon dioxide emission allowances was guided by the aim to use the supposedly efficient price formation mechanism of an organized exchange to optimally allocate a certain quantity of emissions among potential polluters while this introduction of a centralized trading arrangement should have helped to achieve required emission reductions with a minimum of economic losses from the viewpoint of market participants it has raised concerns about appropriate risk management provisions to cope with the fluctuations of time varying allowance prices the present review provides an overview over state of the art models for price volatility expanding the scope from relatively simple garch type models to models with long term dependence and regime switches including the relatively recent class of so called multifractal models we provide a comparative application of these models to carbon dioxide emission allowance prices from the european union emission trading scheme and evaluate their performance with up to date model comparison tests based on out of sample forecasts of future volatility and value at risk

bond returns liquidity and missing data this paper examines holding period returns to constant duration portfolios of u s govern ment notes and bonds and measures the return premium generated by liquidity differences in bonds the approach compares constant duration portfolios constructed in two distinct ways one using only bonds issued in the most recent treasury auction one using all other bonds comparisons of the resulting series are made meaningful by choosing narrow du ration ranges in the portfolio formation procedure this in turn induces a missing data problem in the created time series parameters of return distributions are therefore estimated employing a maximum likelihood framework that explicitly accounts for the missing data it is estimated that recently issued bonds are priced to return a premium of around 55 basis points per annum over otherwise equivalent instruments

the minimum cvar strategy with semi parametric estimation in carbon market hedging problems abstract effective hedging strategies are important in reducing price volatility risk for business investors and companies participating into carbon markets in this paper we investigate the risk triggered by price fluctuation of european union allowance eua a semi parametric approach with cornish fisher expansion which approximates the quantile using the higher moments of the distribution is provided to estimate hedging ratios using cvar as risk objective function the approach can successfully capture the features of higher moments with the heavy tailed and higher kurtosis distribution of the eua returns which tends to be neglected the hedging performances of minimum cvar model we proposed and the conventional minimum variance model are evaluated and compared our empirical results show that minimum cvar hedging strategy generally outperforms the other in sample using all the effectiveness criteria while it is not consistent out of sample the proposed semi parametric minimum cvar strategy with cornish fisher expansion is advisable in carbon market hedging problems

impact of the economic recession on the european power sector s co2 emissions abstract this paper investigates the impact of the economic recession on co 2 emissions in the european power sector during the years 2008 and 2009 three main determinants of the power sector s emissions are identified the demand for electricity the co 2 price and fuel prices a counterfactual scenario has been set up for each of these i e what these parameters would have been if not affected by the recession a simulation model of the european power sector is then employed comparing a historical reference simulation taking the parameters as actually occurred with the counterfactual scenarios the lower electricity demand due to the recession is shown to have by far the largest impact accounting for an emission reduction of about 175 mton the lower co 2 price due to the recession resulted in an increase in emissions by about 30 mton the impact of fuel prices is more difficult to retrieve an indicative reduction of about 17 mton is obtained mainly as a consequence of the low gas prices in 2009 the simulated combined impact of the parameters results in an emission reduction of about 150 mton in the european power sector over the years 2008 and 2009 as a consequence of the recession

a big data study on emitting companies performance in the first two phases of the european union emission trading scheme as co2 emissions are quantified by allowances and traded in markets wise trading strategies will bring emitting companies higher profits or lower costs based on the big data of community independent transaction log citl this article hereby presents a micro study on the emitting companies efforts in increasing profits and saving costs during the allowances trading in the first two phases of the european union emission trading scheme eu ets the efforts are measured by an after action factor of trading performance which is built on a series of behaviour and monetary variables by comparison demanders of the emitting companies are more inclined to reach a higher trading performance while that inclination is heterogeneous among the suppliers in addition emitting companies with lower emission levels had a better trading performance with a higher proportion of low emitting companies the manufacturing sector had a better trading performance than the energy sector the effect of the trading requirement on trading performance are investigated via a quantile regression mode results suggest that 1 the selling requirement of suppliers has a positive effect on their trading performance while the effect becomes weaker when the selling requirement increases 2 the buying requirement has a positive effect on the demanders trading performance only when the requirement is high and the effect becomes stronger as the requirement increases and 3 when the buying requirement is at a lower level demanders trading performance becomes worse as the requirement grows the conclusion is that the emission level industrial sector and trading requirement do have influences on the trading performance of emitting companies in emission trading

risk spillovers across the energy and carbon markets and hedging strategies for carbon risk this study examines the risk spillovers between energy futures prices and europe based carbon futures contracts we use a markov regime switching dynamic correlation generalized autoregressive conditional heteroscedasticity ms dcc garch model in order to capture the time variations and structural breaks in the spillovers we further evaluate the optimal weights hedging effectiveness and dynamic hedging strategies for the ms dcc garch model based on both the regime dependent and regime independent optimal hedge ratios we finally complement our analysis by examining the in and out of sample hedging performances for alternative strategies our results mainly show significant volatility and time varying risk transmission from energy markets to carbon market we also find that spot and futures segments of the emission markets exhibit time varying correlations and volatile hedging effectiveness the subsample estimates show significant changes in the hedge effectiveness over the different phases of the european carbon market these results have important investment and policy implications

an overview of co2 cost pass through to electricity prices in europe this paper investigates the link between wholesale electricity prices in europe and the co2 cost i e the price of european union allowances euas over the two first phases of the european union emissions trading scheme eu ets we set up a theoretical framework and an empirical model to estimate to what extent daily fluctuations of co2 costs may have impacted electricity prices regarding estimation results for the first phase of the eu ets about 42 of estimated pass through rates appear to be statistically significant while only one third of them are statistically different from zero in the second phase we try to improve those results by proposing alternative estimates based on the eu ets compliance periods