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Influences from the European Parliament on EU emissions prices

Authors: 

Peter Deeney, Mark Cummins, Micheal Dowling, Alan Smeaton

Publication Type: 
Refereed Original Article
Abstract: 
he decisions of the European Parliament (EP) are shown to influence both EU emission allowance (EUA) prices and volatility. Reductions in price and increases in volatility are observed when EP decisions are (i) not “party-political” in origin, (ii) made during times of low market sentiment, or (iii) made during times of low market attention. Daily EUA prices from 2007 to 2014 are used in the study, with decisions analysed using an event study approach for price impact, and a GARCH specification for volatility impact. Our findings suggest the need for policymakers to improve communication of long-term strategies for the EUA market. This aims to reduce the evident ongoing uncertainty experienced by traders around each decision made by the EP. The finding that sentiment and market attention at the time of an EP decision influences the market's reaction indicates a need to consider market dynamics in terms of decision timing, so that market turbulence is not an unintended by-product of an EP decision. Indeed some form of medium term forward guidance may be called for.
Digital Object Identifer (DOI): 
10.1016/j.enpol.2015.06.026
ISSN: 
0301-4215
Publication Status: 
Published
Date Accepted for Publication: 
Thursday, 21 January, 2016
Publication Date: 
22/01/2016
Journal: 
Energy Policy
Research Group: 
Institution: 
Dublin City University (DCU)
Open access repository: 
Yes