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EUAs and CERs: Vector Autoregression, Impulse Response Function and Cointegration Analysis

Author

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  • Julien Chevallier

    (Université Paris Dauphine)

Abstract

EUAs are European Union Allowances traded on the EU Emissions Trading Scheme (EU ETS), while Certified Emissions Reductions (CERs) arise from the Clean Development Mechanism under the Kyoto Protocol. These emissions assets attract an increasing attention among brokers, investors and operators on emissions markets, because they may be both used for compliance under the EU ETS (up to fixed limits). This paper proposes a statistical analysis of the inter-relationships between EUA and CER price series, by using vector autoregression, impulse response function, and cointegration analysis on daily data from March 9, 2007 to January 14, 2010. The central results show that EUAs and CERs affect each other significantly through the vector autoregression model, and react quite rapidly to shocks on each other through the impulse response function analysis. Most importantly, both price series are found to be cointegrated, with EUAs leading the price discovery process in the long-term through the vector error correction mechanism.

Suggested Citation

  • Julien Chevallier, 2010. "EUAs and CERs: Vector Autoregression, Impulse Response Function and Cointegration Analysis," Economics Bulletin, AccessEcon, vol. 30(1), pages 558-576.
    • Handle: RePEc:ebl:ecbull:eb-10-00037
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    References listed on IDEAS

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    Cited by:

    1. Nazifi, Fatemeh, 2013. "Modelling the price spread between EUA and CER carbon prices," Energy Policy, Elsevier, vol. 56(C), pages 434-445.
    2. repec:eco:journ1:2014-03-21 is not listed on IDEAS
    3. repec:dau:papers:123456789/7938 is not listed on IDEAS
    4. Tan, Xue-Ping & Wang, Xin-Yu, 2017. "Dependence changes between the carbon price and its fundamentals: A quantile regression approach," Applied Energy, Elsevier, vol. 190(C), pages 306-325.
    5. Ange Nsouadi & Jules Sadefo Kamdem & Michel Terraza, 2013. "Analyse temps-fréquence de la relation entre les prix du quota et du crédit carbone," Working Papers 13-12, LAMETA, Universtiy of Montpellier, revised Nov 2013.
    6. Oscar Carchano & Vicente Medina Martínez & Ángel Pardo Tornero, 2012. "Rolling over EUAs and CERs," Working Papers. Serie AD 2012-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    7. Schultz, Emma & Swieringa, John, 2014. "Catalysts for price discovery in the European Union Emissions Trading System," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 112-122.
    8. Vicente Medina & Angel Pardo & Roberto Pascual, 2013. "Carbon Credits: Who is the Leader of the Pack?," International Journal of Energy Economics and Policy, Econjournals, vol. 3(3), pages 210-220.
    9. Ange Nsouadi & Jules Sadefo Kamdem & Michel Terraza, 2015. "Analyse temps-fréquence du co-mouvement entre le marché européen du CO2 et les autres marchés de l'énergie," Working Papers 15-08, LAMETA, Universtiy of Montpellier, revised May 2015.
    10. repec:dau:papers:123456789/5441 is not listed on IDEAS
    11. Hyeonho Kim & Yujin Kim & Yongho Ko & Seungwoo Han, 2022. "Performance Comparison of Predictive Methodologies for Carbon Emission Credit Price in the Korea Emission Trading System," Sustainability, MDPI, vol. 14(13), pages 1-20, July.
    12. Mizrach, Bruce, 2012. "Integration of the global carbon markets," Energy Economics, Elsevier, vol. 34(1), pages 335-349.
    13. Cummins, Mark, 2013. "EU ETS market interactions: The case for multiple hypothesis testing approaches," Applied Energy, Elsevier, vol. 111(C), pages 701-709.
    14. Koop, Gary & Tole, Lise, 2013. "Modeling the relationship between European carbon permits and certified emission reductions," Journal of Empirical Finance, Elsevier, vol. 24(C), pages 166-181.
    15. Julien Chevallier, 2012. "EUAs and CERs: Interactions in a Markov regime-switching environment," Economics Bulletin, AccessEcon, vol. 32(1), pages 86-101.
    16. de Bonviller, Simon & Wheeler, Sarah Ann & Zuo, Alec, 2020. "The dynamics of groundwater markets: Price leadership and groundwater demand elasticity in the Murrumbidgee, Australia," Agricultural Water Management, Elsevier, vol. 239(C).
    17. Cao, Guangxi & Xu, Wei, 2016. "Multifractal features of EUA and CER futures markets by using multifractal detrended fluctuation analysis based on empirical model decomposition," Chaos, Solitons & Fractals, Elsevier, vol. 83(C), pages 212-222.
    18. Yue-Jun Zhang, 2016. "Research on carbon emission trading mechanisms: current status and future possibilities," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 39(1/2), pages 89-107.

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    More about this item

    Keywords

    EUA; CER; Vector Autoregression; Impulse Response Function; Cointegration; Vector Error Correction Model; EU ETS; Price Discovery.;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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