Disentangling the Effects of EU Industrial Production and CO2 Emissions on Carbon Prices

Source: OAI


This article critically examines the impact of industrial production for sectors covered by the EU Emissions Trading Scheme (EU ETS) on emissions allowance spot prices during Phase I (2005-2007). Using sector production indices and CO2 emissions compliance positions de ned by a ratio of allowance allocation relative to baseline emissions, we show that the e ect of industrial activity on EU carbon price changes shall be analysed in conjunction with production peaks and compliance net short/long positions at the sector level. The results extend previous literature by showing that carbon price changes react not only to energy prices forecast errors and extreme temperatures events, but also to industrial production in three sectors covered by the EU ETS: combustion, paper and iron.

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Available from: Benoît Chèze, Jul 29, 2015