Data for: Do carbon prices increase electricity prices? A panel cointegration analysis of the European Union Emissions Trading System

Published: 07-07-2020| Version 3 | DOI: 10.17632/vgnvsvz8y9.3
Contributors:
Fahd Boundi Chraki,
Javier López Prol

Description

Carbon markets are one of the main measures to mitigate climate change but their effects on electricity prices are still uncertain. We study the causation chain from carbon allowance price through wholesale electricity price to retail residential and industrial prices during the second and third phases of the European Union Emissions Trading System. We use panel unit root and panel cointegration techniques in order to assess the long run effects of carbon prices on wholesale and retail electricity prices. We evaluate the short and long run causal relationships between variables by applying vector error correction models and pairwise Granger non-causality tests. We find that a 1% increase in carbon prices increases wholesale (1.6%), residential (0.9%) and industrial (1.1%) electricity prices. Likewise, a 1% increase in wholesale electricity prices increases retail prices by 0.6-0.7%. The causality analysis indicates bidirectional causal relationships for most of the variables, both short and long run, which suggests potential feedback loops.

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