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Open AccessFeature PaperArticle

Emissions Trading System of the European Union: Emission Allowances and EPEX Electricity Prices in Phase III

by 1,*,† and 2,†
1
Institute for Economics, University of Freiburg, Platz der Alten Synagoge, 79098 Freiburg, Germany
2
Swiss Federal Institute of Technology (ETH Zurich), Weinbergstr. 56/58, 8092 Zurich, Switzerland
*
Author to whom correspondence should be addressed.
These authors contributed equally to this work.
Energies 2019, 12(15), 2894; https://doi.org/10.3390/en12152894
Received: 30 June 2019 / Revised: 23 July 2019 / Accepted: 24 July 2019 / Published: 27 July 2019
(This article belongs to the Special Issue Market Design for a High-Renewables Electricity System)
The Emissions Trading System in the European Union was introduced to achieve the climate goal of reducing emissions by around 43% between 1990 and 2030. Accordingly, the costs of emission allowances are part of power generation and, by extension, the price of electricity. Theoretical works thus suggest a positive relationship between the price of emission allowances and electricity. However, this has not been validated empirically for phase III of the Emissions Trading System in the short run as part of the price setting mechanism of electricity producers. Our evidence suggests an opposite effect: According to our empricial results, both European Power Exchange (EPEX) day-ahead and intraday markets are negatively affected during phase III. We further test for a potentially asymmetric influence with the help of quantile regressions. Altogether, the outcome has implications for policy-makers and calls for further attention by academics and policy-makers in the future design of the Emissions Trading System, especially under larger amount of renewables in the electricity system. View Full-Text
Keywords: emissions trading; electricity price; econometric modeling; time series analysis; emission allowance emissions trading; electricity price; econometric modeling; time series analysis; emission allowance
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Wolff, G.; Feuerriegel, S. Emissions Trading System of the European Union: Emission Allowances and EPEX Electricity Prices in Phase III. Energies 2019, 12, 2894.

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