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Carbon price drivers: Phase I versus Phase II equilibrium?

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  • Creti, Anna
  • Jouvet, Pierre-André
  • Mignon, Valérie

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.

Suggested Citation

  • Creti, Anna & Jouvet, Pierre-André & Mignon, Valérie, 2012. "Carbon price drivers: Phase I versus Phase II equilibrium?," Energy Economics, Elsevier, vol. 34(1), pages 327-334.
    • Handle: RePEc:eee:eneeco:v:34:y:2012:i:1:p:327-334
    DOI: 10.1016/j.eneco.2011.11.001
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    More about this item

    Keywords

    EU ETS; Carbon price; Energy prices; Cointegration;
    All these keywords.

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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