Modelling the Dynamics of Fuel and EU Allowance Prices during Phase 3 of the EU ETS
This article studies the relationship between the prices of fuel and EU Allowances (EUA) for carbon emissions during Phase 3 of the European Union Emissions Trading System. We find that the forward prices of EUA, coal, gas and Brent oil are jointly determined in equilibrium. The existence of such a...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2018-11-01
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| Series: | Energies |
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| Online Access: | https://www.mdpi.com/1996-1073/11/11/3148 |
| _version_ | 1828273496877170688 |
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| author | M. Angeles Carnero Jose Olmo Lorenzo Pascual |
| author_facet | M. Angeles Carnero Jose Olmo Lorenzo Pascual |
| author_sort | M. Angeles Carnero |
| collection | DOAJ |
| description | This article studies the relationship between the prices of fuel and EU Allowances (EUA) for carbon emissions during Phase 3 of the European Union Emissions Trading System. We find that the forward prices of EUA, coal, gas and Brent oil are jointly determined in equilibrium. The existence of such a long-run relationship entails a permanent-transitory decomposition for the series of EUA and fuel prices that reveals the short- and long-term causal influence of the EUA market in shaping the joint dynamics of fuel prices. This result complements the literature that suggests that EUA prices are driven by the dynamics of fuel prices. Interestingly, we do not find an equilibrium relationship in the spot market. EUA and fuel spot prices are driven by independent unit root processes. The differences between spot and forward markets are attributed to the tradability of forward prices that are used for speculation and hedging in financial markets. In contrast, spot prices are mainly driven by supply and demand in energy markets. |
| first_indexed | 2024-04-13T06:21:26Z |
| format | Article |
| id | doaj.art-08fdce48c5774d1da19c8cbadc0b4f21 |
| institution | Directory Open Access Journal |
| issn | 1996-1073 |
| language | English |
| last_indexed | 2024-04-13T06:21:26Z |
| publishDate | 2018-11-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Energies |
| spelling | doaj.art-08fdce48c5774d1da19c8cbadc0b4f212022-12-22T02:58:37ZengMDPI AGEnergies1996-10732018-11-011111314810.3390/en11113148en11113148Modelling the Dynamics of Fuel and EU Allowance Prices during Phase 3 of the EU ETSM. Angeles Carnero0Jose Olmo1Lorenzo Pascual2Fundamentos del Análisis Económico (FAE), Universidad de Alicante, 03690 Alicante, SpainEconomics, University of Southampton, Southampton SO17 1BJ, UKNEA Newbers Energy Analytics, 28012 Madrid, SpainThis article studies the relationship between the prices of fuel and EU Allowances (EUA) for carbon emissions during Phase 3 of the European Union Emissions Trading System. We find that the forward prices of EUA, coal, gas and Brent oil are jointly determined in equilibrium. The existence of such a long-run relationship entails a permanent-transitory decomposition for the series of EUA and fuel prices that reveals the short- and long-term causal influence of the EUA market in shaping the joint dynamics of fuel prices. This result complements the literature that suggests that EUA prices are driven by the dynamics of fuel prices. Interestingly, we do not find an equilibrium relationship in the spot market. EUA and fuel spot prices are driven by independent unit root processes. The differences between spot and forward markets are attributed to the tradability of forward prices that are used for speculation and hedging in financial markets. In contrast, spot prices are mainly driven by supply and demand in energy markets.https://www.mdpi.com/1996-1073/11/11/3148EU ETScarbon pricecointegrationforecastingpermanent-transitory decomposition |
| spellingShingle | M. Angeles Carnero Jose Olmo Lorenzo Pascual Modelling the Dynamics of Fuel and EU Allowance Prices during Phase 3 of the EU ETS Energies EU ETS carbon price cointegration forecasting permanent-transitory decomposition |
| title | Modelling the Dynamics of Fuel and EU Allowance Prices during Phase 3 of the EU ETS |
| title_full | Modelling the Dynamics of Fuel and EU Allowance Prices during Phase 3 of the EU ETS |
| title_fullStr | Modelling the Dynamics of Fuel and EU Allowance Prices during Phase 3 of the EU ETS |
| title_full_unstemmed | Modelling the Dynamics of Fuel and EU Allowance Prices during Phase 3 of the EU ETS |
| title_short | Modelling the Dynamics of Fuel and EU Allowance Prices during Phase 3 of the EU ETS |
| title_sort | modelling the dynamics of fuel and eu allowance prices during phase 3 of the eu ets |
| topic | EU ETS carbon price cointegration forecasting permanent-transitory decomposition |
| url | https://www.mdpi.com/1996-1073/11/11/3148 |
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