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Impacts of oil shocks on the EU carbon emissions allowances under different market conditions

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  • Zheng, Yan
  • Yin, Hua
  • Zhou, Min
  • Liu, Wenhua
  • Wen, Fenghua

Abstract

This study tests the effects of oil shocks on the returns of the European Union's carbon emission allowance (EUA) under different market conditions by using a quantile regression method. Furthermore, the research looks into whether the link between oil shocks and the returns of the EUA has any asymmetry or lagged effects. The results show that oil supply and demand shocks have a positive effect on the returns of the EUA, but oil risk shocks have a negative effect. Meanwhile, oil shocks tend to be stronger under bearish and normal market conditions. Moreover, we find the asymmetry of oil demand and risk shocks is more clearly reflected in bearish market conditions. However, the asymmetry of oil supply shocks is more reflected in bullish market conditions. Finally, we discover the lagged effect between oil demand and risk shocks is significant at lag one trading day and weakens or disappears at other lags. But the lagged impact of oil supply shocks is significant for lag one trading day in a bearish market and normal market conditions but significant at lag eight trading days in bullish market conditions.

Suggested Citation

  • Zheng, Yan & Yin, Hua & Zhou, Min & Liu, Wenhua & Wen, Fenghua, 2021. "Impacts of oil shocks on the EU carbon emissions allowances under different market conditions," Energy Economics, Elsevier, vol. 104(C).
    • Handle: RePEc:eee:eneeco:v:104:y:2021:i:c:s0140988321005387
    DOI: 10.1016/j.eneco.2021.105683
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    More about this item

    Keywords

    EU ETS; Carbon emission trading market; Oil shocks; Quantile regression; Asymmetric effect; Lagged effect;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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