EUA Price Research Articles

탄소배출권 거래가 전남지역 산업 생산활동에 미치는 영향

When comparing South Korea's emission trading market on a global scale, such as in Europe, the United States, and China, South Korea possesses the hardware infrastructure required for the operation of an emission trading system. However, it appears to be lacking in the software aspect, including the implementation of various carbon reduction policies to complement the carbon emission trading system. The study empirically analyzes the impact of the carbon emission trading system on industries in Jeonnam. First, the carbon emission trading system does not seem to significantly constrain short-term production activities of businesses. Second, when examining the impact of carbon emission prices (KAU, EUA) on major industries in the Jeonnam region, carbon-related variables act as information intermediaries. It is evident that the chemical and steel industries in Jeonnam play the role of information recipients. Third, concerning the connectivity network with KAU as the central variable, it is apparent that the chemical and steel industries in Jeonnam receive more influence from KAU rather than influencing it. In the case of the connectivity network with EUA as the central variable, EUA plays the role of information recipients for the chemical and steel industries. This can be attributed to the participation of these industries in the European carbon emission trading market while exporting chemical and steel products to Europe, affecting EUA demand and prices. In the future, the impact of carbon emission reduction policies is likely to increase for domestic industries and companies in the Jeonnam region in the short term. To achieve regional and national carbon neutrality, policy measures tailored to the industrial structure characteristics of the Jeonnam region must be developed.

Regional distribution of hard coal consumption in the power sector under selected forecasts of EUA prices

Regional distribution of hard coal consumption in the power sector under selected forecasts of EUA prices

Can weather variables and electricity demand predict carbon emissions allowances prices? Evidence from the first three phases of the EU ETS

This study examines the predictive impact of weather conditions and electricity demand on hourly spot prices of emissions allowances during the first three phases of the European Union Emissions Trading System (EU ETS) (2005–2019). We propose an original methodology for constructing European-scale electricity demand and weather indices and characterize the relationship between those indices and emissions allowances prices by means of an advanced predictive modeling technique (Extreme Gradient Boosting). Empirical findings assert that electricity demand and the weather variables under study were of importance for estimating EUA prices during the first three phases of the EU ETS, with air temperature and electricity demand being most relevant to emissions allowances prices. Conversely, total precipitation and relative humidity proved to be the least relevant variables to the outcome. The results also indicate that the relationship between emissions allowances prices and their weather-related predictors was not linear in the studied period. The paper contributes to the growing body of literature on the structural determinants of carbon prices in the EU ETS and enhances our understanding of the impact of climate and weather variability – in the provision of renewable energy production – on the most prominent market-based measure to reduce CO2 emissions in Europe.

Cost pass-through in the British wholesale electricity market

Cost pass-through (CPT) rates give a useful perspective of market competition. This article studies how input costs of electricity generation are passed through to the wholesale price in Great Britain between 2015 and 2018. Our empirical results fail to reject the null hypothesis of 100% CPT rates for gas costs and EUA prices (and coal costs for most hours), suggesting a competitive British wholesale electricity market in most hours. We observe a higher CPT rate for coal costs in peak and off-peak periods. This is due to coal plants usually bidding at rates somewhat lower than marginal costs during off-peak periods in order to dispatch at their minimum load to avoid the costs of shutting down and starting back up. Instead, during peak periods the rate of capacity utilisation is high and marginal coal plants tend to exercise their market power, resulting in a higher CPT rate for coal costs. We extend the argument by assessing coal plants’ bidding and find evidence of coal plants exercising market power in hours with high residual demand, generating extreme prices.

Co-Movements between Eu Ets and the Energy Markets: A Var-Dcc-Garch Approach

This paper analyzes the co-movements of prices of fossil fuels, energy stock markets and EU allowances. This analysis is conducted in order to identify the spillover effect of volatility and correlation among these financial markets, and to provide a scientific basis that shows the interest of incorporating sustainable assets in the design of minimum risk strategies of investment. To achieve this goal, we have used a Vector Autoregressive-Dynamic Conditional Correlation-Generalized Autoregressive Conditional Heteroscedasticity (VAR-DCC-GARCH) model that also incorporates a stock index of industrial companies as a leading indicator of the level of economic activity. In addition, the paper conducts an impulse response analysis to determine how unexpected shocks to prices are propagated along time, and, in particular, how they affect prices of the others, both in mean, variance and correlation. Therefore, the results of this one- and two-dimensional analysis allow for the study of short and long run dynamics of the relationship among those prices, thus, providing greater meaning and information for investors, which has implications for building their portfolios. The analyzed period was from January 2010 to February 2021, so that the data include half of phase II, full phase III and the onset of phase IV of the EU ETS, as well as the COVID-19 outbreak in the European context. We also analyzed whether the EUA price impulses the demand of clean energy stocks, which has important implications for the objective of triggering the investment in clean energy. Our results show the transmission mechanism of all of those prices, which are relevant not only for investors but also for policymakers to construct an early-warning system, revealing the most important transmission channels. Moreover, from an investment viewpoint, we observe a decline in dirty energies and a rise in the clean energy market, which might be an indication of the progress towards the energy transition to renewables sources within a circular economy perspective. Therefore, this shows that the EU ETS is achieving its goals, and that clean energy companies, aligned with their role towards socially responsible initiatives, are also gaining acceptance in terms of investments, which would be beneficial for the environment.

Carbon Financial Markets Underlying Climate Change Mitigation, Pricing and Challenges: Technical Analysis

Climate Change (CC) is a major issue of our century. Controlling the constraints of Greenhouse Gas (GHG) emissions through transformation into opportunities, in an organization to increase industrial production, has become a necessity. The main reason for this adoption was the effectiveness of energy management and responsible linkages that are being developed to determine the issues and opportunities of carbon finance for organizations. Through analysis of the European Union Emissions Trading Scheme (EU ETS) and the Clean Development Mechanism (CDM), this article presents and determinate the variables that influence the performance of the strategies of EU ETS players via the EUA allowances. Our study focuses on price changes in the EUA, being the most liquid carbon asset. In this regard, we highlighted the daily spot price of the EUA to highlight the daily changes affecting this price, given the high volatility in this Carbon financial market. The treatments of the determinants of CO2 prices (EUA) can be used to analyze the evolving and expanding carbon financial markets sphere. It features stylized facts about carbon financial markets from an economics and management perspective, as well as covering key aspects of pricing strategies (institutional decisions, energy prices and extreme weather events), climate change mitigation. Aimed at those with technical analysis, the CO2 prices within the framework of the EU ETS depend on several determinants. This paper constitutes an introduction to emission trading and an overview of the regulations governing Carbon financial markets. First, we detail the price changes in the EUA and primary energy prices. Second, we introduce the main characteristics of emissions trading, be it in terms of spatial and temporal limits, Clean Dark Spread, Clean Spark Spread and Switch Price. Third, we provide a technical analysis of atmospheric variables, structural variations and the Sanitary COVID-19 crisis and their impacts in the price development of EU CO2 allowances and presnt after conclusion some implications for future.

Effectiveness of climate policies: Carbon pricing vs. subsidizing renewables

Most but not all economists view carbon pricing as most effective to combat carbon emissions, whereas other policies are widely applied and highly debated. We quantify the effectiveness of climate policies in the form of pricing carbon and subsidizing renewable energies for Germany's and Britain's power sectors. While Germany relies on heavy subsidies for renewables but on a weak price for carbon certificates (EUA) from the EU Emission Trading System (ETS), its emissions hardly declined. To underpin the low EUA price, Britain introduced a unilateral tax on power sector emissions, the Carbon Price Support (CPS). Within only five years, carbon emissions declined by 55%. Our results demonstrate that in the power sector, even a modest carbon price (∼€30/tCO2) can induce significant abatement at low costs within a short period as long as “cleaner” gas plants exist to replace “dirty” coal plants. We also find that carbon pricing is superior to subsidizing wind or solar power in these two countries.

The long-term impact of the market stability reserve on the EU emission trading system

To provide a strong price signal for greenhouse gas emissions abatement, Europe decided to strengthen the European Union Emissions Trading System (EU ETS) by implementing a market stability reserve (MSR) that includes a cancellation policy and to increase the linear reduction factor from 1.74% to 2.2% after 2020. Results of a detailed long-term investment model, formulated as a large-scale mixed complementary problem, show that this strengthened EU ETS may quadruple EUA prices and may decrease cumulative CO2 emissions with 21.3 GtCO2 compared to the cumulative cap before the strengthening (52.2 GtCO2). Around 40% of this decrease (8.3 GtCO2) is due to the increased linear reduction factor and 60% due to the cancellation policy (13 GtCO2). Without the increased linear reduction factor, the MSR's cancellation policy would decrease emissions by only 4.1 GtCO2, indicating their complementarity. A sensitivity analysis on key model assumptions and parameters reveals that the impact of the MSR is, however, strongly dependent on other policies (e.g., renewable energy targets, nuclear, lignite and coal phase-outs) and cost evolutions of abatement options (e.g., investment cost reductions for wind and solar power). This renders the effective CO2 emissions cap highly uncertain. In our simulation results, cancellation volumes range between 5.6 and 17.8 GtCO2, which is to be compared with our central estimate of 13 GtCO2. We calculate the required linear reduction factors to achieve these CO2 emission reductions without an MSR, which would remove all uncertainty on the cumulative CO2 emissions and interference with other complementary climate or energy policies.

Carbon financial markets underlying climate risk management, pricing and forecasting: Fundamental analysis

Climate Change (CC) is a major issue of our century. Controlling the constraints of Greenhouse Gas (GHG) emissions through transformation into opportunities, in an organization to increase industrial production, has become a necessity. The main reason for this adoption was the effectiveness of energy management and responsible linkages that are being developed to determine the issues and opportunities of carbon finance for organizations. Through analysis of the European Union Emissions Trading Scheme (EU ETS) and the Clean Development Mechanism (CDM), this article presents and demonstrates a variety of determinants of CO2 prices (EUA) to be used in econometric techniques. This paper details the main carbon price drivers related to institutional decisions, energy prices, and weather events. Our study focuses on price changes in the EUA, being the most liquid carbon asset. In this regard, we highlighted the daily spot price of the EUA to highlight the daily changes affecting this price, given the high volatility in this Carbon financial market. The treatments of the determinants of CO2 prices (EUA) can be used to analyze the evolving and expanding Carbon financial markets sphere. It features stylized facts about Carbon financial markets from an economics and management perspective, as well as covering key aspects of pricing strategies (institutional decisions, energy prices, and extreme weather events), risk, and portfolio management. Aimed at those with fundamental analysis, the CO2 prices within the framework of the EU ETS depend on several determinants. This paper constitutes an introduction to emission trading and an overview of the regulations governing Carbon financial markets. First, we detail the price changes in the EUA and primary energy prices. Second, we introduce the main characteristics of emissions trading, be it in terms of spatial and temporal limits, Clean Dark Spread, Clean Spark Spread, and Switch Price. Third, we provide a descriptive analysis of atmospheric variables, structural variations, and the Subprime crisis and their impacts on the price development of EU CO2 allowances. Keywords: Fundamental analysis, European Union Emissions Trading Scheme, Clean Development Mechanism (CDM), Determinants of CO2 prices (EUA), Climate risk management.

How to avoid history repeating itself: the case for an EU Emissions Trading System (EU ETS) price floor revisited

ABSTRACT Several years of very low allowance prices in the EU emissions trading scheme (ETS) have motivated calls to introduce a price floor to correct potential underlying distortions and design flaws, including (i) the political nature of allowance supply and related credibility issues, (ii) potential myopia of market participants and firms, and (iii) waterbed and rebound effects resulting from policy interactions. In the wake of the recent EU ETS reform, allowance prices have sharply increased. This raises the question of whether the case for introducing a price floor in the EU ETS remains valid. We argue that such a price floor, also adopted in several other greenhouse gas cap-and-trade systems worldwide, remains an important improvement in the design of the system, as long as the above-mentioned distortions and design flaws persist. An EU ETS price floor can safeguard against these issues and provides more explicit guidance on the minimum allowance price policymakers consider acceptable. Either as a complement or substitute to the current Market Stability Reserve (MSR), a price floor would thus make the EU ETS less prone to future revision in case of unexpectedly low prices. We identify and confront four prominent arguments against the introduction of an EU ETS price floor. Key policy insights An EU ETS price floor would be an important institutional innovation enhancing political and economic stability, and predictability of the EUA price The recent Market Stability Reserve (MSR) reform has not removed the need for a carbon price floor. Introducing an element of price responsiveness into the so far purely quantitative design of the EU ETS would help to preserve its integrity In contrast to conventional wisdom, legal analysis reveals that an EU ETS price floor can be legally feasible Political support for a carbon price floor is gaining traction across Europe

EU Carbon Emissions Market Development and Its Impact on Penetration of Renewables in the Power Sector

This paper focuses on the analysis of the EU carbon trading scheme and its impacts on regional power system development and penetration of renewable energy sources (RES). The aim of the article is to analyze the forecasts of carbon dioxide (EUA) prices for the years 2019–2030 and to apply the results of this forecast in regional power system planning. The data employed in this paper come from many sources, including empirical data of the selected analytical companies, such as Thomson Reuters among others. The current low prices for carbon dioxide emission rights do not encourage the reduction of greenhouse gas emissions, in particular carbon dioxide, and do not have a significant impact on the penetration of renewables. This paper presents the results of two scenarios (for 2021 and 2030) developed after the analysis of the EUA price impact on penetration of renewable energy sources in West-Pomeranian region assuming different electricity production and the EUA price forecasts. The results of two regional energy development scenarios run for 2021 and 2030 indicate changes in the structure of renewables in West-Pomeranian region. The results also show that the increase of EUA price has a significant impact on the increase of costs for power production and increase of unit cost of the installed 1GWh. In addition, the forecasted EUA price in 2030 is 3% lower as compared with 2021, which has its impact on the increased share of electricity produced by co-firing biomass with other fossil—from 42% to 68% in the electricity generation structure of West-Pomeranian region.

Supply-side perspective for carbon pricing

This paper theoretically and empirically revisits carbon pricing from the supply-side perspective for carbon assets to solve the recent low price issue which may delay the development of emission reduction technologies in the sense of marginal abatement costs. We propose a carbon pricing model linked to crude oil prices, which has historically been employed in supply-side driven pricing of long-term contracts for early-stage energy trading. Since the model is designed to hold carbon prices between certain lower and upper boundaries using S-shaped carbon price linkage to crude oil prices, it can be useful to overcome a recent low carbon price issue. In addition, it is shown that the model can alleviate the difficulties of carbon derivative pricing in selecting market price of risk. Empirical studies using EUA and Brent crude oil futures prices estimate the parameters of the Brent crude oil-linked EUA price model. The comparison of EUA prices simulated from the model with historical EUA prices suggests that simulated EUA prices be kept relatively higher than historical EUA prices. This is preferable for accelerating carbon emission reductions in that it can make emission reduction technologies with high marginal abatement costs affordable. It may imply that EUA must be priced using a crude oil-linked carbon price model in the early stage of EUA trading until EUA markets mature. This is a sharp contrast to current carbon markets employing premature market-based or supply and demand based pricing models. To show usefulness of crude oil-linked carbon pricing, we also give a numerical example of European carbon option pricing based on the Brent crude oil-linked EUA price model by using the Crank-Nicolson finite difference method. Finally we discuss the relation between crude oil-linked carbon pricing and emission reduction risk. These studies may suggest carbon policy makers should take account of crude oil-linked carbon pricing to tackle low price and low liquidity issues of carbon assets.

The Political Economy of a Carbon Price Floor for Power Generation

The EU carbon price lies well below estimates of the social cost of carbon and “target-consistent” carbon prices needed to deliver ambitious targets such as the 40% reduction target for 2030. In light of this, the UK introduced a carbon price floor (CPF) for its electricity sector in 2013 and the new Dutch Government has recently made a similar commitment, while successive French Governments have called for an EU-wide CPF. This paper analyzes the impacts and design of a power-sector CPF, both at the EU and national level, using a political-economy approach. We find a good case for introducing such a price-based instrument into the EU ETS. We suggest that a CPF should be designed to “top up” the EUA price to €25-30/tCO2, rising annually at 3-5% above inflation, at least until 2030. We argue that the new EU Market Stability Reserve enhances the value of a CPF in terms of delivering climate benefits, and discuss the potential for a regional CPF in North-West Europe. We also review international policy experience with price floors (and ceilings).

Use of Mulifactor Models with Garch Structure in Carbon Emissions Risk Management

Abstract Tightening the environmental norms that result from the priorities of the EU 2030 Energy and Climate Package and the reform of the EU ETS have caused the necessity to implement an effective system of managing the risk of carbon dioxide emission and integrate it with the existing enterprise management system. Evaluation of the direction and strength of correlation between EUA price changes and energy companies stock price returns is crucial from point of view the managerial staff making proper decisions about the use of the CO2 emission permits by energy companies. It is an important stage of carbon emission risk management process. The aim of this paper is to verify the possibility of use the multifactor models with GARCH structure as a tool supporting the carbon emission management process in energy companies. Empirical analysis is connected with the estimation of multifactor models with GARCH structure in the Phase II and Phase III of the EU ETS functioning for two groups of Polish energy companies: group of the Respect Index companies and others. Such an approach allows to check whether the Respect Index companies are more robust than others on the carbon emission risk, in particular the EUA price risk associated with the intensification works on modifying the EU ETS functioning. We found that the impact of EUA price changes on energy companies stock returns and their volatility is statistically insignificant in case of all Respect Index companies.

Fuel prices impacts on stock market of metallurgical industry under the EU emissions trading system

Metallurgical industry is among the largest industrial users of fossil fuels in the Spanish economy and it is one of the industries under the European Union emissions trading system. This study examines the long-run equilibrium relations and short-run interactions between fuels and European Union carbon emissions allowances price changes and the corporate value of Spanish iron and steel industry.From a multifactor market model specification, a cointegrated Vector Error Correction model is employed for the period covering 1st January 2013 to 15th September 2015 to embrace the analysis. Moreover, by using a panel data econometric approach, it is tested if the relationship of European Union carbon emissions allowances and fuel prices variations with stock returns are firm-specific.The results indicate a negative stable long-run relation between gas prices and stock market price changes of metallurgy sector and firm-specific effects. Regarding the EUA price change effect on aggregated stock market return, the VECM estimation did not find a significant long-run linkage. However, the results of EUA price change impact at firm level showed evidence for heterogeneity in this effect.

Supply-Side Perspective for Carbon Pricing

This paper theoretically and empirically revisits carbon pricing from the supply-side perspective for carbon assets to solve a recent low price issue, which may delay the development of emission reduction technologies in the sense of marginal abatement costs. We propose a carbon pricing model linked to crude oil prices, which has historically been employed in supply-side driven pricing of long-term contracts for energy trading in the early stage. Since the model is designed to hold carbon prices between certain lower and upper boundaries using S-shaped carbon price linkage to crude oil prices, it can be useful to overcome a recent low carbon price issue. In addition, it is shown that the model can alleviate the difficulties of carbon derivative pricing in selecting market price of risk. Empirical studies using EUA and Brent crude oil futures prices estimate the parameters of the Brent crude oil-linked EUA price model. EUA prices simulated from the model with the parameter estimates are compared with historical EUA prices. The results suggest that simulated EUA prices from the model be kept relatively higher than historical EUA prices. This is preferable for accelerating carbon emission reductions in that emission reduction technologies with high marginal abatement costs are affordable. It may imply that EUA must be priced using a crude oil-linked carbon price model in the early stage of EUA trading until EUA markets are fully matured from the supply-side perspective for carbon asset pricing, not employing a premature market-based or supply and demand-based carbon price model. To show usefulness of crude oil-linked carbon pricing, we also give a numerical example of European carbon option pricing based on the Brent crude oil-linked EUA price model by using Crank-Nicolson finite difference method. Finally we discuss the relation between crude oil-linked carbon pricing and emission reduction risk. These studies may suggest carbon policy makers take into account of crude oil-linked carbon pricing to tackle low price and low liquidity issues of carbon assets.

KOHERENTNE MIARY RYZYKA W ZARZĄDZANIU RYZYKIEM CEN UPRAWNIEŃ DO EMISJI CO2 W PRZEDSIĘBIORSTWACH OBJĘTYCH SYSTEMEM EU ETS

KOHERENTNE MIARY RYZYKA W ZARZĄDZANIU RYZYKIEM CEN UPRAWNIEŃ DO EMISJI CO2 W PRZEDSIĘBIORSTWACH OBJĘTYCH SYSTEMEM EU ETS

Convenience Yields and Risk Premiums in the EU‐ETS—Evidence from the Kyoto Commitment Period

AbstractWe examine convenience yields and risk premiums in the EU‐wide emissions trading scheme (EU‐ETS) during the first Kyoto commitment period (2008–2012). We find that the market has changed from initial backwardation to contango with significantly negative convenience yields in futures contracts. We further examine the impact of interest rate levels in the Eurozone, the increasing level of surplus allowances and banking, as well as returns, variance, or skewness in the EU‐ETS spot market. Our findings suggest that the drop in risk‐free rates during and after the financial crisis has impacted on the deviation from the cost‐of‐carry relationship for emission allowances (EUA) futures contracts. Our results also illustrate a negative relationship between convenience yields and the increasing level of inventory during the first Kyoto commitment period, providing an explanation for the high negative convenience yields. Finally, we find that market participants are willing to pay an additional risk premium in the futures market for a hedge against increased volatility in EUA prices. Overall, our results contribute to the literature on the determinants and empirical properties of convenience yields and risk premiums for this relatively new class of assets. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 36:587–611, 2016

The Implicit Carbon Price of Renewable Energy Incentives in Germany

This research analyzes the German experience in promoting Renewable Energy (RE) as an instrument to reduce GHG emissions. It identifies the cost of reducing CO2 emissions in the power sector through the promotion of wind and solar energy for the years 2006-2010. A RE carbon surcharge and an implicit carbon price due to the RE incentives are calculated. The RE carbon surcharge is the ratio of the net cost of the RE over the CO2 emission reductions resulting from actual RE injections into the electric power system. The implicit carbon price is the sum of the RE carbon surcharge and the EUA price. Results show that for the period analyzed both the RE carbon surcharge and the implicit carbon price of wind are on the order of tens of euro per tonne of CO2, while for solar are on the order of hundreds of euro per tonne of CO2.

Explaining the EUA-CER Spread

Because of a link between the EU ETS and the Kyoto Flexible Mechanisms, the emission certificates traded on these markets are in principle interchangeable assets; despite of this, a persistent price difference exists. We explain this price spread using a theoretical model that combines three features: A binding limit for the use of Kyoto offsets within the EU ETS; a disconnect between the price of offsets and their marginal cost of production due to institutional reasons; and uncertainty about future supply and demand of offsets. Our model expresses the offset price as an average of the EUA price and an offset’s outside value, weighted by the probability of a binding import limit. Using a detailed dataset on expected offset supply and demand, we provide empirical support for our theory of offset price formation. In addition, we find evidence for informational frictions governing the use of offsets within the EU ETS.