ETS Markets and Electricity Futures Prices

36 Pages Posted: 22 Apr 2011

See all articles by Manuel Moreno

Manuel Moreno

University of Castilla-La Mancha

Samy Dana

School of Economics of Sao Paulo - Department of Finance

Date Written: April 12, 2011

Abstract

This paper addresses the economic impact of the carbon allowance market in the European Emission Trading Scheme (ETS) on the futures market of electricity, gas, and coal. Our findings seem to confirm that, as expected, electricity returns are positively affected by carbon allowances, coal, and natural gas returns. Additionally, a SVAR model with short-run restrictions and two lags shows that lagged returns of allowances affect current returns of allowances and energy futures prices. Finally, an impulse-response analysis seems to corroborate that electricity futures returns suffer the consequences from shocks on the allowances returns.

Keywords: Kyoto protocol, Price transmission, Volatility transmission, Certified Emissions Reduction

JEL Classification: C13, Q42, Q43, Q54

Suggested Citation

Moreno Fuentes, Manuel and Dana, Samy, ETS Markets and Electricity Futures Prices (April 12, 2011). Available at SSRN: https://ssrn.com/abstract=1808124 or http://dx.doi.org/10.2139/ssrn.1808124

Manuel Moreno Fuentes (Contact Author)

University of Castilla-La Mancha ( email )

Cobertizo San Pedro Martir s/n
Toledo, Toledo 45071
Spain

Samy Dana

School of Economics of Sao Paulo - Department of Finance ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

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