The marginal impacts of energy prices on carbon price variations: evidence from a quantile-on-quantile approach

Duan, K., Ren, X., Shi, Y. , Mishra, T. and Yan, C. (2021) The marginal impacts of energy prices on carbon price variations: evidence from a quantile-on-quantile approach. Energy Economics, 95, 105131. (doi: 10.1016/j.eneco.2021.105131)

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Abstract

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.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Shi, Dr Yukun and Yan, Dr Cheng
Creator Roles:
Shi, Y.Supervision, Writing – review and editing
Yan, C.Writing – review and editing
Authors: Duan, K., Ren, X., Shi, Y., Mishra, T., and Yan, C.
College/School:College of Social Sciences > Adam Smith Business School
College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:Energy Economics
Publisher:Elsevier
ISSN:0140-9883
ISSN (Online):1873-6181
Published Online:27 January 2021
Copyright Holders:Copyright © 2021 Elsevier B.V.
First Published:First published in Energy Economics 95: 105131
Publisher Policy:Reproduced under a Creative Commons License

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