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European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007)

Emilie Alberola and Julien Chevallier

Year: 2009
Volume: Volume 30
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No3-3
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Abstract:
The price of European Union Allowances (EUAs) has been declining at far lower levels than expected during Phase I (2005-2007). Previous literature identifies among its main explanations over-allocation concerns, early abatement efforts in 2005, and possibly decreasing abatement costs in 2006. We advocate low allowance prices may also be explained by banking restrictions between 2007 and 2008. Based on a Hotelling-CAPM analysis, we provide statistical evidence that the French and Polish decisions to ban banking contribute to the explanation of low EUA Phase I prices. Besides, we provide the first rigorous empirical verification that the cost-of-carry relationship between EUA spot and futures prices for delivery during Phase II does not hold after the enforcement of the inter-period banking restrictions. This situation may be interpreted as a sacrifice of the temporal flexibility offered to industrials in Phase I to correct design inefficiencies, and achieve an efficient price pattern in Phase II.



Carbon Leakage and Competitiveness of Cement and Steel Industries Under the EU ETS: Much Ado About Nothing

Frédéric Branger, Philippe Quirion, Julien Chevallier

Year: 2016
Volume: Volume 37
Number: Number 3
DOI: 10.5547/01956574.37.3.fbra
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Abstract:
In a world of uneven climate policies, concerns about carbon leakage and competitiveness for heavy industries are the main arguments against the implementation of ambitious climate policies. In this paper we investigate a potential competitiveness-driven operational carbon leakage due to the European Union Emissions Trading scheme (EU ETS). We focus on two energy-intensive sectors, cement and steel, and phases I and II of the EU ETS. From a simple analytical model, we derive an equation linking net imports of cement and steel to local and foreign demand along with carbon price. We then econometrically estimate this relation both with ARIMA regression and Prais-Winsten estimation, finding that local and foreign demand are robust drivers of trade flows. We find no significant effect of the carbon price on net imports of steel and cement. We conclude that there is no evidence of carbon leakage in these sectors, at least in the short run.



Fundamental and Financial Influences on the Co-movement of Oil and Gas Prices

Derek Bunn, Julien Chevallier, Yannick Le Pen, and Benoit Sevi

Year: 2017
Volume: Volume 38
Number: Number 2
DOI: 10.5547/01956574.38.2.dbun
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Abstract:
As speculative flows into commodity futures are expected to link commodity prices more strongly to equity indices, we investigate whether this process also creates increased correlations amongst the commodities themselves. Considering U.S. oil and gas futures, we investigate whether common factors, derived from a large international data set of real and nominal macroeconomic variables by means of the large approximate factor models methodology, are able to explain both returns and whether, beyond these fundamental common factors, the residuals remain correlated. We further investigate a possible explanation for this residual correlation by using some proxies for trading intensity derived from CFTC publicly available data, showing most notably that the proxy for speculation in the oil market increases the oil-gas correlation. We thus identify the central role of financial activities in shaping the link between oil and gas returns.



Oil Price Risk and Financial Contagion

Khaled Guesmi, Ilyes Abid, Anna Creti, and Julien Chevallier

Year: 2018
Volume: Volume 39
Number: Special Issue 2
DOI: 10.5547/01956574.39.SI2.kgue
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Abstract:
In this paper we test for the existence of equity market contagion, originating from oil price fluctuations, to regional and domestic stock markets. The data are collected over the period from April 1993 to April 2015. We apply an empirical multifactor asset pricing model with three-factor setting to capture the unexpected return and disentangle simple correlation due to fundamentals and contagion. We investigate four regions: the European Monetary Union (EMU), Asia-Pacific (AP), the Non-European Monetary Union (NEMU) and North America (NA). We define contagion as the excess correlation that is not explained by fundamental factors. Oil price risk is shown to be a factor as important as contagion. In addition, oil price fluctuations amplify contagion in the context of regional markets strongly interlinked with the USA.



On the CO2 Emissions Determinants During the EU ETS Phases I and II: A Plant-level Analysis Merging the EUTL and Platts Power Data

Benoît Chèze, Julien Chevallier, Nicolas Berghmans, and Emilie Alberola

Year: 2020
Volume: Volume 41
Number: Number 4
DOI: 10.5547/01956574.41.4.bche
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Abstract:
This article studies ex-post the CO2 emissions determinants during 2005�2012 by resorting to an original database merging the European Union Transaction Log (EUTL) with the World Electric Power Plants (WEPP) database maintained by Platts. We estimate the main drivers of CO2 emissions for the 1,453 power plants included in the EU ETS using plant-level panel data. During phases I and II, there has been a debate about whether the economic crisis was ultimately the only factor behind the fall in CO2 emissions. We find that the EU ETS kept some degree of effectiveness but only during phase I (2005�07). During phase II (2008�12), its impact has been largely impeded by the deep economic recession in 2008�2009 which became the leading cause of the emissions reduction. We disentangle the analysis not only by periods but also for each type of power plants. We conclude that the EU Commission�s flagship climate policy could and should be enhanced by better coordination of overlapping climate policies.





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