European Low-Carbon Policy: Impact on fossil energy markets

Jacques Minlend
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Jacques Minlend: Université de Rennes, CNRS, CREM-UMR6211, F-35000 Rennes, France

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

Abstract: This paper proposes text-as-data methods relying on unsupervised machine learning algorithms applied to European Union (EU) law acts and newspapers. These are used to construct two monthly indices over a reference period 1997-2021: (i) First, a news-based index which underlies a conjunctural uncertainty about the international context in which the global energy and environment policy evolves (EnvPU). (ii) Second, a laws-based index which reflects structural changes of the European energy and environment regulations (EnvP). The main findings suggest both indices display, in some extent, a common evolutionary pattern around salient events in the history of the EU energy and environment policy. Moreover, EnvPU index appears to be more volatile and is driven in the short-run by EnvP index. Given the support of such a policy to carbon phase-out, we further examine, in what extent, each index relates to price uncertainty dynamics in fossil energy markets (oil, gas, and coal). As a result, we uncover that, increase in news-based EnvPU index has a positive impact on price uncertainty of all fossil energy markets, the effect being stronger and more significant for gas and coal markets. In contrast, while an exogenous shock in laws-based EnvP index has a negative effect on price uncertainty in oil and gas markets, it tends to increase the coal price uncertainty. Overall, EnvP index depicts a stabilizing effect on fossil energy prices.

Keywords: Energy and Environment Policy; News and media; Text-mining; Unsupervised machine learning; Commodity markets; Structural VAR. (search for similar items in EconPapers)
JEL-codes: C32 C55 C80 D80 Q02 Q58 (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-big, nep-eec, nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:tut:cremwp:2023-04

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