Exchange rate effect on carbon credit price via energy markets

Jongmin Yu and Mindy Mallory ()

Journal of International Money and Finance, 2014, vol. 47, issue C, 145-161

Abstract: This paper examines the impact of currency exchange rates on the carbon market. We scrutinize this effect through the European Union Emission Trading Scheme (EU-ETS), which primarily uses two substitutable fossil energy inputs for the generation of electricity: coal and natural gas. The European coal market is directly driven by global coal markets that are denominated in USD, whereas, natural gas is mainly imported from Russia and is denominated in Euros. The impulse response functions of a Structural Vector Autoregression (SVAR) model demonstrate that a shock in the Euro/USD exchange rate can be transmitted through the channel of energy substitution between coal and natural gas, and influence on the carbon credit market.

Keywords: Foreign exchange rate; Carbon market; Fuel-switching; Structural VAR (search for similar items in EconPapers)
JEL-codes: F31 Q43 Q58 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:47:y:2014:i:c:p:145-161

DOI: 10.1016/j.jimonfin.2014.04.010

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