Emission Trading Scheme and the Price of Energy
21 Pages Posted: 14 Sep 2009
Date Written: September, 14 2009
This research analyzes the relationship between the carbon and the energy market. These two markets are linked together on a regulatory and on a structural basis. The energy sector is the most important industry within the European Emission Trading Scheme (EU ETS): as main producers of carbon emissions they are also the main users of carbon allowances. The question we address here is if there is a direct link between the carbon spot market and the energy spot market. We investigate the correlation, called pass through rate (PTR) between the energy and carbon market. Our findings show that the PTR is extremely volatile, and it depends on time frame and purposes of the energy market players. This leads to an intervention by policy makers and regulators to define the rules framework of the EU ETS.
Keywords: Emission Trading Scheme, Correlation, Energy, Pass Through Rate
JEL Classification: G32, Q47
Suggested Citation: Suggested Citation