Does the European low-carbon policy impact price uncertainty in fossil energy markets?

Jacques Minlend ()
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Jacques Minlend: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université

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Abstract: This paper aims to assess the potential effects of a low-carbon policy on price uncertainty in fossil energy markets. For this purpose, we propose text-as-data methods that rely on unsupervised machine-learning algorithms applied to European Union (EU) laws and newspapers. These methods are used to construct two monthly indices over the reference period 1997-2021: (i) a news-based index that reflects uncertainty about the regulatory framework of low-carbon policy as relayed in the press, and (ii) a law-based index that reflects structural changes in European low-carbon policy. Given the support for the carbon phase-out policy, we further examine the extent to which each index relates to price uncertainty dynamics in fossil energy markets. As a result, we find that an increase in the news-based index leads to a positive short-run effect on price uncertainty. Similarly, we observe both dampening short-run and persistent effects of the law-based index on price uncertainty. Thus, stabilizing price uncertainty dynamics through regulations serves as a measure of the efficacy and resilience of European low-carbon policy. This result is robust to the consideration of macroeconomic factors.

Keywords: Low-carbon policy; Textual-data; Unsupervised machine learning; Energy markets; Structural VAR (search for similar items in EconPapers)
Date: 2025
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Published in Energy Economics, 2025, 148, pp.108644. ⟨10.1016/j.eneco.2025.108644⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05167910

DOI: 10.1016/j.eneco.2025.108644

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