Environmental Engineering Reference
In-Depth Information
Figure 11. Development of Basis of the ECX EUA DEC 08 and DEC 09 futures against the BlueNext
spot contract for the compliance period 2005-2007
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futures contract. Thus, it confirms the notion that
the convenience yield is generally smaller than
the interest rate. But above all, Figure 11 shows
oscillations and a high variability of the pricing
relation between spot and futures markets which
can not be explained just by changes in the cost-
of-carry. Temporary disequilibria caused by pric-
ing inefficiencies and uncertainties over the
supply and demand constraints seem to have a
considerable influence on the pricing relation.
This observation confirms the general conjecture
that the EU ETS is working well, but its effi-
ciency and integrity is still susceptible. The level
of fuzziness in this price relation could, in part,
be ascribed to the uncertainty over politically
induced supply and demand constraints.
to capture the marginal price changes in the two
markets delivered satisfactory results.
30
Figure 12
shows a regression analysis for the trading period
between January 2009 and December 2009. In this
sample, the t-test statistic confirms significance
in the positive slope parameter with a more than
99% confidence. But with a value of 0.1163 for
the coefficient of determination the regression
test reveals a high proportion of variability in the
suggested price relation.
Hence, the pricing relations between electric-
ity and emissions markets seem to reveal similar
levels of variability as we exemplified before for
the interaction between spot and futures markets.
At this point, we would conclude with Reinaud
(2007) that there is no universal answer on how
emissions prices exactly affect electricity prices
and empirical estimates of pass-though rates re-
main tentative. Among other factors, the relation-
ship between electricity and emissions prices also
hinges on the industrials' power purchasing strat-
egies as well as on the potential use of market
power by electricity generators. Again, the vari-
ability in this pricing relation confirms our gen-
eral conjecture that the price discovery function
in emission markets is still susceptible and, hence,
particular attention needs to be paid on secondary
market functioning and integrity when designing
large scale auctioning.
Interaction of Electricity
and Emissions Markets
In the second subsection on the foundations and
economics of cap-and-trade markets we have dem-
onstrated how the price for emission allowances
transforms into an uptick on electricity prices. De-
parting from this fundamental relation one should
expect to find a strong positive correlation between
emission and electricity price levels in real live
markets. Testing various periods we found only a
few occasions where a linear regression analysis
