The marginal impacts of energy prices on carbon price variations: Evidence from a quantile-on-quantile approach
Tapas Mishra () and
Energy Economics, 2021, vol. 95, issue C
We uncover the marginal impacts of energy prices on carbon price variations across carbon-energy price distributions in Phase III of the European Union Emission Trading Scheme (EU ETS). Applying a novel Quantile-on-Quantile (QQ) regression and the causality-in-quantiles approach, our empirical results demonstrate asymmetric and negative impacts of energy prices on carbon prices. The impacts are stronger at lower carbon quantiles and relatively smaller at higher quantiles (in absolute terms). Concerning different energy sources, the impacts of both oil and coal prices show a quasi-monotonic increase along with a rise in carbon quantiles; the absolute values of their impacts are much greater than that of the gas price impacts, depicting a relatively flat pattern. The results are consistent with our theoretical explanations which identify the two effect-transmission channels from energy to carbon prices, viz. the aggregated carbon demand effect and the fuel-switching effect. Thanks to the differences in energy sources and variability over their price distributions, the observed differential in carbon price-response is an indication of non-unique carbon market dynamics, the efficient management of which would require differentiated policy interventions. Robustness checks further confirm the accuracy of our conclusions.
Keywords: Carbon futures prices; Energy futures prices; EU ETS; Quantile-on-quantile; Causality-in-quantiles (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:95:y:2021:i:c:s0140988321000360
Access Statistics for this article
Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant
More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().