DISENTANGLING THE EFFECTS OF INDUSTRIAL PRODUCTION AND CO_2 EMISSIONS ON EUROPEAN CARBON PRICES

摘要

This article critically examines the impact of industrial production on allowance prices for sectors covered by the European Union Emissions Trading Scheme (EU ETS). Using sector production indices and a ratio of allowance allocation relative to baseline emissions, we show that the effect of economic activity on carbon prices shall be analysed in conjunction with compliance breaks which reveal useful information about the net short/long position at the installation level. The results extend the previous literature by showing that carbon prices react not only to other energy markets and weather influences, but also to sector production and compliance breaks. Thus, we uncover new carbon price drivers during the EU ETS Phase I (2005-07).