Carbon content of electricity futures in phase II of the EU ETS

H. Fell, B. Hintermann, Herman Vollebergh

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We estimate the relationship between electricity, fuel and carbon prices in Germany, France, the Netherlands, the Nord Pool market and Spain, using one-year futures for base and peak load prices for the years 2008-2011, corresponding to physical settlement during the second market phase of the EU ETS. We employ a series of estimation methods that allow for an increasing interaction between electricity and input prices on the one hand, and between electricity markets on the other. The results vary by country due to different generation portfolios. Overall, we find that (a) carbon costs are passed through fully in most countries; (b) under some model specifications, cost pass-through is higher during peak load than during base load for France, Germany and the Netherlands; and (c) the results are sensitive to the degree of cross-commodity and cross-market interaction allowed.
Original languageEnglish
Article number2644
JournalThe Energy Journal
Volume36
Issue number4
DOIs
Publication statusPublished - 2015

Fingerprint

Electricity
Carbon
Costs
Specifications
Germany
Electricity price
France
The Netherlands
Power markets
Cost pass-through
Fuel price
Carbon price
Spain
Electricity market
Model specification
Market interaction
Commodities
Input prices
Interaction

Keywords

  • cost pass-through
  • electricty markets
  • EU ETS
  • conintegration
  • carbon content
  • renewables
  • GARCH

Cite this

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abstract = "We estimate the relationship between electricity, fuel and carbon prices in Germany, France, the Netherlands, the Nord Pool market and Spain, using one-year futures for base and peak load prices for the years 2008-2011, corresponding to physical settlement during the second market phase of the EU ETS. We employ a series of estimation methods that allow for an increasing interaction between electricity and input prices on the one hand, and between electricity markets on the other. The results vary by country due to different generation portfolios. Overall, we find that (a) carbon costs are passed through fully in most countries; (b) under some model specifications, cost pass-through is higher during peak load than during base load for France, Germany and the Netherlands; and (c) the results are sensitive to the degree of cross-commodity and cross-market interaction allowed.",
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Carbon content of electricity futures in phase II of the EU ETS. / Fell, H.; Hintermann, B.; Vollebergh, Herman.

In: The Energy Journal, Vol. 36, No. 4, 2644, 2015.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Carbon content of electricity futures in phase II of the EU ETS

AU - Fell, H.

AU - Hintermann, B.

AU - Vollebergh, Herman

PY - 2015

Y1 - 2015

N2 - We estimate the relationship between electricity, fuel and carbon prices in Germany, France, the Netherlands, the Nord Pool market and Spain, using one-year futures for base and peak load prices for the years 2008-2011, corresponding to physical settlement during the second market phase of the EU ETS. We employ a series of estimation methods that allow for an increasing interaction between electricity and input prices on the one hand, and between electricity markets on the other. The results vary by country due to different generation portfolios. Overall, we find that (a) carbon costs are passed through fully in most countries; (b) under some model specifications, cost pass-through is higher during peak load than during base load for France, Germany and the Netherlands; and (c) the results are sensitive to the degree of cross-commodity and cross-market interaction allowed.

AB - We estimate the relationship between electricity, fuel and carbon prices in Germany, France, the Netherlands, the Nord Pool market and Spain, using one-year futures for base and peak load prices for the years 2008-2011, corresponding to physical settlement during the second market phase of the EU ETS. We employ a series of estimation methods that allow for an increasing interaction between electricity and input prices on the one hand, and between electricity markets on the other. The results vary by country due to different generation portfolios. Overall, we find that (a) carbon costs are passed through fully in most countries; (b) under some model specifications, cost pass-through is higher during peak load than during base load for France, Germany and the Netherlands; and (c) the results are sensitive to the degree of cross-commodity and cross-market interaction allowed.

KW - cost pass-through

KW - electricty markets

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KW - conintegration

KW - carbon content

KW - renewables

KW - GARCH

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