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An overview of CO2 cost pass-through to electricity prices in Europe

Author

Listed:
  • Boris Solier

    (Paris-Dauphine University (LEDa-CGEMP) and Climate Economics Chair.)

  • Pierre-André Jouvet

    (EconomiX-CNRS, University of Paris Ouest, and Climate Economics Chair)

Abstract

This paper investigates the link between wholesale electricity prices in Europe and the CO2 cost, i.e. the price of European Union Allowances (EUAs), over the two first phases of the European Union Emissions Trading Scheme (EU ETS). We set up a theoretical framework and an empirical model to estimate to what extent daily fluctuations of CO2 costs may have impacted electricity prices. Regarding estimation results for the first phase of the EU ETS, about 42% of estimated pass-through rates appear to be statistically significant, while only one third of them are statistically different from zero in the second phase. We try to improve those results by proposing alternative estimates based on the EU ETS compliance periods.

Suggested Citation

  • Boris Solier & Pierre-André Jouvet, 2011. "An overview of CO2 cost pass-through to electricity prices in Europe," Working Papers 1108, Chaire Economie du climat.
    • Handle: RePEc:cec:wpaper:1108
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    EU ETS; CO2 cost pass-through; Electricity spot markets;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G1 - Financial Economics - - General Financial Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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