Short communication: Effect of carbon emission trading on European Union butter prices

摘要

Since its inception, the European Union (EU) carbonemission market has been vastly successful in reducinggreenhouse gas emissions. Accordingly, the usage ofenvironmentally friendly fuels (e.g., ethanol, biodiesel)has increased significantly over the last few years. Giventhat EU biodiesel is mainly produced from rapeseedoil and soybean oil, higher carbon taxes are likely toincrease the demand of these important vegetable oils,which further affects the prices of its close substitutesuch as butter. Nevertheless, the association betweenthe EU emission trading scheme and butter prices remainsunderstudied. In this paper, we aim to fill thisvacuum in the existing literature. Applying the autoregressivedistributed lag bound testing procedure, weshow that emission market seems to have a long-termeffect on EU butter prices, implying that changes in thelevels of carbon taxes will lead to changes in the pricelevel of butter. These results are of vital importance topolicymakers and investors.