California´s Carbon Market and Energy Prices: A Wavelet Analysis

Luís Aguiar-Conraria (), Maria Joana Soares () and Rita Sousa
Additional contact information
Maria Joana Soares: NIPE and Department of Mathematics and Applications, University of Minho.

No 13/2017, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: Carbon price is a key variable in management and risk decisions in activities related to the burning of fossil fuels. Different major players in this market, such as polluters, regulators, and financial actors, have different time horizons. We use innovative multivariate wavelet analysis tools, including partial wavelet coherency and partial wavelet gain, to study the link between carbon prices and final energy prices in the time and frequency dimensions in California’s carbon market, officially known as the California cap-and-trade program. We find that gasoline prices lead an anti-phase relation with carbon prices. This result is very stable at lower frequencies (close to one-year period cycles), and it is also present before mid-2015 in the 20 ∼ 34 weeks frequency-band. Regarding electricity, we find that at about a one-year period, a rise in carbon prices is reflected in higher electricity prices. We conclude that the first five years of compliance of the California cap-and-trade program show t at emissions’ trading is a significant measure for climate change mitigation, with visible rising carbon prices. The quantitative financial analytics we present supports the recent decision to extend the current market to 2030 without the need for complementary carbon pricing schemes.

Keywords: Multivariate wavelet analysis; partial wavelet gain; partial wavelet coherency; carbon market; energy prices; California ETS. (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.nipe.eeg.uminho.pt/Uploads/WP_2017/NIPE%20WP_13_2017.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.nipe.eeg.uminho.pt/Uploads/WP_2017/NIPE%20WP_13_2017.pdf [301 Moved Permanently]--> https://nipe.eeg.uminho.pt/Uploads/WP_2017/NIPE%20WP_13_2017.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nip:nipewp:13/2017

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in NIPE Working Papers from NIPE - Universidade do Minho Núcleo de Investigação em Políticas Económicas e Empresariais, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal. Contact information at EDIRC.
Bibliographic data for series maintained by NIPE ().