Exchange rate effect on carbon credit price via energy markets

Jongmin Yu; Mindy L. Mallory

doi:10.1016/j.jimonfin.2014.04.010

Exchange rate effect on carbon credit price via energy markets

Jongmin Yu, Mindy L. Mallory

Agricultural and Consumer Economics

Research output: Contribution to journal › Article › peer-review

Abstract

This paper examines the impact of currency exchange rates on the carbon market. We scrutinize this effect through the European Union Emission Trading Scheme (EU-ETS), which primarily uses two substitutable fossil energy inputs for the generation of electricity: coal and natural gas. The European coal market is directly driven by global coal markets that are denominated in USD, whereas, natural gas is mainly imported from Russia and is denominated in Euros. The impulse response functions of a Structural Vector Autoregression (SVAR) model demonstratethat a shock in the Euro/USD exchange rate can be transmitted through the channel of energy substitution between coal and natural gas, and influence on the carbon credit market.

Original language	English (US)
Pages (from-to)	145-161
Number of pages	17
Journal	Journal of International Money and Finance
Volume	47
DOIs	https://doi.org/10.1016/j.jimonfin.2014.04.010
State	Published - Oct 2014

Keywords

Carbon market
Foreign exchange rate
Fuel-switching
Structural VAR

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.jimonfin.2014.04.010

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abstract = "This paper examines the impact of currency exchange rates on the carbon market. We scrutinize this effect through the European Union Emission Trading Scheme (EU-ETS), which primarily uses two substitutable fossil energy inputs for the generation of electricity: coal and natural gas. The European coal market is directly driven by global coal markets that are denominated in USD, whereas, natural gas is mainly imported from Russia and is denominated in Euros. The impulse response functions of a Structural Vector Autoregression (SVAR) model demonstratethat a shock in the Euro/USD exchange rate can be transmitted through the channel of energy substitution between coal and natural gas, and influence on the carbon credit market.",

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AB - This paper examines the impact of currency exchange rates on the carbon market. We scrutinize this effect through the European Union Emission Trading Scheme (EU-ETS), which primarily uses two substitutable fossil energy inputs for the generation of electricity: coal and natural gas. The European coal market is directly driven by global coal markets that are denominated in USD, whereas, natural gas is mainly imported from Russia and is denominated in Euros. The impulse response functions of a Structural Vector Autoregression (SVAR) model demonstratethat a shock in the Euro/USD exchange rate can be transmitted through the channel of energy substitution between coal and natural gas, and influence on the carbon credit market.

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KW - Fuel-switching

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Exchange rate effect on carbon credit price via energy markets

Abstract

Keywords

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