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Emission trading in a high dimensional context: to what extent are carbon markets integrated with the broader system?

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  • Marco Quatrosi

    (University of Palermo)

Abstract

The EU ETS represents the cornerstone of the EU climate policy framework. While most of the studies focus on the determinants of carbon price, this work will provide further insights into the influence of European Emission Allowance (EUA) prices on carbon dioxide trends and variables of the economic-financial-climate-environmental system considering a large set of time series. Results highlighted how CO2 appears to be more influenced by commodity prices, climate variables, and past industrial performances. Furthermore, a shock in carbon prices could potentially exert significant turbulence on the carbon dioxide series, fading in intensity as time goes by. Overall, there appears to be a net positive effect on the influence of carbon prices on the system. However, robustness checks identified how the impact of carbon price on CO2 and other variables of the model is still weak. This work sheds light on the EU ETS's influence on a set of multidimensional variables. Still, overlapping national policies appear to interfere with the EU ETS effectiveness in the EU.

Suggested Citation

  • Marco Quatrosi, 2024. "Emission trading in a high dimensional context: to what extent are carbon markets integrated with the broader system?," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 41(3), pages 793-814, October.
    • Handle: RePEc:spr:epolit:v:41:y:2024:i:3:d:10.1007_s40888-024-00341-2
    DOI: 10.1007/s40888-024-00341-2
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    More about this item

    Keywords

    EU ETS; Emission trading; Hierarchical VAR; Impulse-Response;
    All these keywords.

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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