Emission Trading Scheme and the Price of Energy

21 Pages Posted: 14 Sep 2009

See all articles by Giovanna Zanotti

Giovanna Zanotti

University of Bergamo; SDA Bocconi

Giampaolo Gabbi

SDA Bocconi School of Management

Date Written: September, 14 2009

Abstract

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

Zanotti, Giovanna and Gabbi, Giampaolo, Emission Trading Scheme and the Price of Energy (September, 14 2009). Available at SSRN: https://ssrn.com/abstract=1473233 or http://dx.doi.org/10.2139/ssrn.1473233

Giovanna Zanotti

University of Bergamo ( email )

Via Salvecchio, 19
Bergamo, 24129
Italy

SDA Bocconi ( email )

via Bocconi 8
Milano, MI 20135
Italy
+390258366101 (Phone)

Giampaolo Gabbi (Contact Author)

SDA Bocconi School of Management ( email )

Via Bocconi 8
Milan, Milan 20136
Italy

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