The impact of the European Union Emission Trading Scheme on electricity generation sectors

In order to comply with their commitments under the Kyoto Protocol, France and Germany participate to the European Union Emission Trading Scheme (EU ETS) which concerns predominantly electricity generation sectors. In this paper we seek to know if the EU ETS gives appropriate economic incentives for an e¢ cient and strong system in line with Kyoto commitments. Because if so electricity producers in these countries should include the price of carbon in their costs functions. After identifying the di¤erent sub periods of the EU ETS during its pilot phase (2005-2007), we model the prices of various electricity contracts and look at their volatilities around their fundamentals while evaluating the correlation between the electricity prices in the two countries. We finnd that electricity producers in both countries were constrained to include the carbon price in their cost functions during the …rst two years of operation of the EU ETS. During this period, German electricity producers were more constrained than their French counterparts and the inclusion of the carbon price in the cost function of electricity generation has been so much more stable in Germany than in France. Furthermore, the European market for emission allowances has increased the market power of the historical French electricity producer and has greatly contributed to the partial alignment of the wholesale price of electricity in France with those of Germany. .Carbon Emission Trading, Multivariate GARCH models, Structural break, Non Parametric Approach, Energy prices.

The impact of phase II of the EU ETS on the electricity-generation sector

URL des Documents de travail : http://ces.univ-paris1.fr/cesdp/cesdp2012.htmlDocuments de travail du Centre d'Economie de la Sorbonne 2012.07 - ISSN : 1955-611XThis paper addresses the economic impact of the European Union Emission Trading Scheme (EU ETS) for carbon on wholesale electricity prices in France and Germany during the Kyoto commitment period (2008-2012). Specifically, we use first identify a structural break occurred on the carbon spot price series on October 2008, which is mainly resulting from the financial and economic crisis. Then, we model the prices of day-ahead electricity contracts. We look at the volatilities around their fundamentals and simultaneously evaluate the correlation between electricity prices in both countries. We find that the price of carbon does not matter for electricity prices in either countries before October 2008. After October 2008, electricity producers in both countries were constrained to include the carbon price in their cost functions. During that period, French electricity producers were more constrained than their German counterparts. Comparing the results with those reported in Kirat and Ahamada (2011) reveals improvements in the response of electricity generation sector to carbon constraints. The impact of carbon constraint increased significantly by 300% and 150% in France and Germany, respectively, between the pilot phase and the second phase of the EU ETS. This is a consequence of the possibility of "banking" for subsequent periods and the reduction of allowance caps introduced in the second phase. We also find evidence of a trade off between gas and coal in electricity generation in Germany. Furthermore, the conditional correlation of electricity prices in both countries is highly significant and greater than during the pilot phase of the EU ETS.Cet article traite de l'impact économique du système communautaire d'échange de quotas d'émission (SCEQE), durant sa deuxième phase (2008-2012), sur les prix de gros de l'électricité en France et en Allemagne. Concrètement, nous identifions un changement structurel survenu sur la série du prix spot du carbone en Octobre 2008, qui est principalement dû à la crise économique et financière. Ensuite, nous modélisons les prix des contrats d'électricité day-ahead et étudions leurs volatilités autour des fondamentaux tout en évaluant la corrélation entre les marchés électriques des deux pays. Nous trouvons qu'avant Octobre 2008, les producteurs d'électricité des deux pays n'ont pas intégré le prix carbone dans leurs fonctions de coûts. Après Octobre 2008, les producteurs d'électricité des deux pays ont été contraints d'inclure le prix du carbone dans leurs fonctions de coût. Pendant cette période, les producteurs français ont été plus contraints que leurs homologues allemands. La comparaison de ces résultats avec ceux rapportés dans Kirat et Ahamada (2011) montre une amélioration de la réponse du secteur de la production d'électricité à la contrainte carbone. Entre la phase pilote et la deuxième phase du SCEQE, l'impact de la contrainte carbone a significativement augmenté de 300% et 150% en France et en Allemagne, respectivement. C'est la conséquence de la possibilité de transférer des permis vers les périodes futures, d'une part, et de la réduction des plafonds des allocations introduit dans la deuxième phase, d'autre part. Nous trouvons aussi des preuves d'un arbitrage entre le gaz et le charbon dans la production d'électricité en Allemagne. Par ailleurs, la corrélation conditionnelle des prix de l'électricité des deux pays est très significative et est supérieure à ce qu'elle était pendant la phase pilote du SCEQE

Flexibility in the market for international carbon credits and price dynamics difference with European allowances

The Paris Agreement establishes a mechanism to allow a Party to benefit from greenhouse gases emissions reductions conducted in a host Party to fulfil its nationally determined contribution. In this context, the objective of this paper is to improve the understanding of carbon offsets price dynamics, in comparison with regular carbon markets allowances. We combine a cointegration approach with risk premium considerations to compare the price dynamics of European Union Allowances (EUA) and Certified Emission Reductions (CER) in the second phase of the European carbon market. By taking account of breaks identified in the series, we find that, while the EUA and CER returns present comparable dynamics, the long-term relationships between the price of these two types of permits and their drivers differ significantly. Given the impact of energy prices (positive for coal and negative for gas) on the CER price, we suggest the existence of a supply-side effect for credits. We find that the price elasticity of allowances with regard to the coal and gas prices is negative in time periods of low economic activity and positive in the rest of the time. We explain the latter by the fact that the market is not tight and the former by the effect of the economic activity on the price of commodities and energy

The impact of phase II of the EU ETS on the electricity-generation sector

This paper addresses the economic impact of the European Union Emission Trading Scheme (EU ETS) for carbon on wholesale electricity prices in France and Germany during the Kyoto commitment period (2008-2012). Specifically, we use first identify a structural break occurred on the carbon spot price series on October 2008, which is mainly resulting from the financial and economic crisis. Then, we model the prices of day-ahead electricity contracts. We look at the volatilities around their fundamentals and simultaneously evaluate the correlation between electricity prices in both countries. We find that the price of carbon does not matter for electricity prices in either countries before October 2008. After October 2008, electricity producers in both countries were constrained to include the carbon price in their cost functions. During that period, French electricity producers were more constrained than their German counterparts. Comparing the results with those reported in Kirat and Ahamada (2011) reveals improvements in the response of electricity generation sector to carbon constraints. The impact of carbon constraint increased significantly by 300% and 150% in France and Germany, respectively, between the pilot phase and the second phase of the EU ETS. This is a consequence of the possibility of "banking" for subsequent periods and the reduction of allowance caps introduced in the second phase. We also find evidence of a trade off between gas and coal in electricity generation in Germany. Furthermore, the conditional correlation of electricity prices in both countries is highly significant and greater than during the pilot phase of the EU ETS.Carbon emission trading, multivariate GARCH models, structural breaks, energy prices.

L’impact du salaire minimum sur l’emploi dans les pays en développement

Cet article traite du salaire minimum en Turquie et de son rôle dans un marché du travail marqué par des taux d’activité et d’emploi très faibles (y compris en tenant compte de l’importante part du travail informel) et par un taux de chômage élevé. Il évalue empiriquement l’impact du salaire minimum sur le nombre d’emplois salariés non agricoles pour la période 1988-2013. Plus spécifiquement, il distingue les effets du salaire minimum sur l’emploi des hommes et des femmes et sur l’emploi formel et informel. Conformément aux prédictions de la théorie néoclassique, les résultats montrent une relation négative entre emploi salarié total et salaire minimum pour les hommes comme pour les femmes. Mais ils montrent également que si le salaire minimum a un effet négatif sur l’emploi salarié informel, il a un effet positif sur l’emploi salarié formel. Ce dernier résultat, bien qu’à l’opposé de ce que prédit le modèle théorique traditionnel du salaire minimum à deux secteurs, est conforme aux résultats de la littérature empirique sur les pays en voie de développement. Nous l’interprétons par le déplacement de l’offre de travail du secteur informel vers le secteur formel, ce qui est un des objectifs des politiques publiques.This article focuses on the issue of the minimum wage in Turkey. It investigates the impact of the minimum wage on a labour market characterized by very low rates of labour force participation and employment, a high unemployment rate and a significant share of informal employment. It assesses empirically the impact of the minimum wage on employment of non-agricultural salaried workers over the period 1988-2013. More specifically, it distinguishes the effect of the minimum wage on the employment of males and females. It distinguishes also that impact on formal and informal jobs. The results show that the minimum wage negatively affects the whole salaried employment, and male and female salaried employment. These results are consistent with the predictions of the neoclassical theory. The results also indicate that the minimum wage has a positive effect on formal salaried employment and a negative impact on informal salaried employment. Although this result contradicts the predictions of the traditional competitive two-sector model of minimum wage, it is in line with the findings of the empirical literature on developing countries. We explain this result by a labour supply shift from the informal sector to the formal one. We conclude that the minimum wage is an important tool of public policy that Turkey should continue to use

Short-term impacts of carbon offsetting on emissions trading schemes: Empirical insights from the EU experience

The Paris Agreement established a new mechanism by which a country can offset some of its emissions reductions in other countries. Its design is still under negotiation. While taking advantage of cheaper abatement opportunities enables efficiency gains, the impact on the price volatility in the emission trading schemes is unclear. We conduct an empirical analysis of the short-term impacts of these credits on the standard carbon markets, using the European Union experience with accepting credits for compliance in the second phase of its scheme. With vector-autoregressive models allowing regime changes at a priori unknown dates, we analyze the structural relationship between the prices of allowances and credits. Although one might expect that the allowance and credit markets influence one another, we find that, before November 2011, knowing the credit price variations helps to better predict the allowance price variations while, after November 2011, it is the opposite. We explain this by expectations and restrictions regarding credits. For the transmission of shocks and the impact on volatility, the influence is mainly from allowances to credits. The allowance price volatility explains between 56% and 72% of the credit volatility whereas the latter explains less than 2% of the former

Flexibility in the Market for International Carbon Credits and Price Dynamics Difference with European Allowances

We analyze the price dynamics of European allowances and international carbon credits in the second phase of the European carbon market. We develop and use a model combining fundamental drivers associated with the demand for quotas by installations and risk-return considerations related to the financial nature of carbon permits. We estimate it with autoregressive conditional heteroskedasticity models. Although carbon permits present some characteristics of financial assets, we find that an increased volatility is not associated with an increased return. The price of allowances and credits are explained by similar factors. However, whereas the corresponding returns present comparable dynamics, the long-term relationships between the price of these two types of permits and their drivers differ significantly. While the price of allowances is demand-driven, we suggest the existence of a supply-side effect for credits, and explain it by the flexibility in the related market. The impact of the European economic activity is less visible on credits than on allowances. The price elasticity of allowances with regards to the coal and gas prices is negative in time periods of low economic activity while it is positive in the rest of the time. We suggest an explanation for this dynamics difference

Threshold regressions for the resource curse

International audienceThis paper analyzes the behavior of cross-country growth rates with respect to resource abundance and dependence. We reject the linear model that is commonly used in growth regressions in favor of a multiple-regime alternative. Using a formal sample-splitting method, we find that countries exhibit different behaviors with respect to natural resources depending on their initial level of development. In high-income countries, natural resources play only a minor role in explaining the differences in national growth rates. On the contrary, in low-income countries, abundance seems to be a blessing but dependence restricts growth

Evidence of a nonlinear effect of the EU ETS on the electricity-generation sector

URL des Documents de travail : http://ces.univ-paris1.fr/cesdp/cesdp2012.htmlDocuments de travail du Centre d'Economie de la Sorbonne 2012.47 - ISSN : 1955-611XThis article considers the evidence for threshold effects in the relationship between electricity and emission permit prices in France and Germany during the second phase of the EU ETS. Specifically, we compare linear and nonlinear threshold models of electricity prices using Hansen's (2000) approach of sample splitting and threshold estimation. We find evidence of nonlinear threshold effects in both countries. The estimated carbon price thresholds are 14.94 € and 12.57 € in France and Germany, respectively. In Germany, the carbon price does not affect the electricity price below this threshold. In France, the price of emission allowances affects the cost of electricity generation only below the carbon-price threshold, thus revealing speculative behavior by French electricity producers on the carbon-allowance market. This is not the case for German electricity producers.Cet article explore la présence d'effets de seuil dans la relation liant le prix de l'électricité à celui des permis d'émission en France et en Allemagne pendant la seconde phase du SCEQE. Plus précisément, nous comparons un modèle linéaire de prix de l'électricité avec un modèle non linéaire à seuil en utilisant l'approche de Hansen (2000). Nous montrons que des effets de seuil sont présents dans les deux pays. Les seuils de prix du carbonne estimés sont de 14.94 € et 12.57 € en France et en Allemagne, respectivement. En Allemagne, le prix du carbone n'affecte pas le prix de l'électricité en dessous de ce seuil. En France, le prix des quotas d'émission affecte le prix de l'électricité seulement en-dessous du seuil de prix du carbone, révélant ainsi un comportement spéculatif des producteurs d'électricité français sur le marché du carbone. A l'inverse, les producteurs d'électricité allemands ne spéculent pas sur le marché des quotas d'émission

Non-linear Pass-Through of the CO2 Emission-Allowance Price onto Wholesale Electricity Prices

International audienc