European Carbon Prices Fundamentals in 2005-2007: The Effects of Energy Markets, Temperatures and Sectorial Production

EconomiX Working Paper No. 2007-33

35 Pages Posted: 3 Jan 2008

See all articles by Emilie Alberola

Emilie Alberola

Université Paris X Nanterre

Julien Chevallier

University of Paris 8 Vincennes-Saint Denis

Benoît Chèze

Université Paris X Nanterre

Date Written: October 17, 2007

Abstract

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). First, 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 allow to isolate distinct fundamentals evolving overtime. The results extend previous literature by showing that spot prices react not only to other energy markets and temperatures, but also to economic activity within the main sectors covered by the EU ETS such as proxied by sectoral production indices. Besides, the sub-period decomposition of the pilot phase gives a better grasp of institutional and market events that drive allowance price changes.

Keywords: Carbon Emissions Trading, Market Price Fundamentals, EU ETS

JEL Classification: Q40, Q48, Q54

Suggested Citation

Alberola, Emilie and Chevallier, Julien and Chèze, Benoît, European Carbon Prices Fundamentals in 2005-2007: The Effects of Energy Markets, Temperatures and Sectorial Production (October 17, 2007). EconomiX Working Paper No. 2007-33. Available at SSRN: https://ssrn.com/abstract=1080161 or http://dx.doi.org/10.2139/ssrn.1080161

Emilie Alberola (Contact Author)

Université Paris X Nanterre ( email )

92, av. de la République, Nanterre
Room G301, Building G
Paris, Nanterre Cedex 92001
France

Julien Chevallier

University of Paris 8 Vincennes-Saint Denis ( email )

Paris
France

Benoît Chèze

Université Paris X Nanterre ( email )

92, av. de la République, Nanterre
Room G301, Building G
Paris, Nanterre Cedex 92001
France

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