Impacts of oil shocks on the EU carbon emissions allowances under different market conditions

Yan Zheng, Hua Yin, Min Zhou, Wenhua Liu and Fenghua Wen

Energy Economics, 2021, vol. 104, issue C

Abstract: This study tests the effects of oil shocks on the returns of the European Union's carbon emission allowance (EUA) under different market conditions by using a quantile regression method. Furthermore, the research looks into whether the link between oil shocks and the returns of the EUA has any asymmetry or lagged effects. The results show that oil supply and demand shocks have a positive effect on the returns of the EUA, but oil risk shocks have a negative effect. Meanwhile, oil shocks tend to be stronger under bearish and normal market conditions. Moreover, we find the asymmetry of oil demand and risk shocks is more clearly reflected in bearish market conditions. However, the asymmetry of oil supply shocks is more reflected in bullish market conditions. Finally, we discover the lagged effect between oil demand and risk shocks is significant at lag one trading day and weakens or disappears at other lags. But the lagged impact of oil supply shocks is significant for lag one trading day in a bearish market and normal market conditions but significant at lag eight trading days in bullish market conditions.

Keywords: EU ETS; Carbon emission trading market; Oil shocks; Quantile regression; Asymmetric effect; Lagged effect (search for similar items in EconPapers)
JEL-codes: C21 G15 G41 Q41 Q43 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:104:y:2021:i:c:s0140988321005387

DOI: 10.1016/j.eneco.2021.105683

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