Explaining the interplay of three markets: Green certificates, - PowerPoint PPT Presentation

Motivation Model VAR estimation Explaining the interplay of three markets: Green certificates, carbon emissions and electricity Sandra Schusser 13 Jurate Jaraite 23 1 Swedish University of Agricultural Sciences 2 Ume˚ a School of Business and Economics 3 Centre for Environmental and Resource Economics (CERE) 23 August 2016 Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation The TGC System Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation TGC issued by source, cancelled and accumulated Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Motivation Why is it important to understand price development of TGC? price signals whether to invest in RES-based electricity generation or not possibility to improve legislative framework to assure RES-goals are reached Legal framework interactions with price frequent legislation changes interactions with EU ETS expected Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Legislation: Percentage Requirement Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Theoretical Paradoxes with both Policies in Place Intuition Black quota will have a negative effect on electricity generation based on conventional sources and favour the use of RES. Literature emission-intensive technologies might increase their emissions (B¨ ohringer and Rosendahl, 2010) EU ETS might have negative effects on both types of electricity generation (Widerberg, 2011) Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Variables that explain TGC price Effect on Effect on TGC Factor electricity price price Temperature − Industrial production + Non-renewable resource price + EUA price + − Renewable electricity supply − − TGCs banked − Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Data Sources Table: Data sources Variable Source Period Frequency TGC Spot Price SKM 2005-2015 Weekly Electricity Spot Price Nordpool 2005-2015 Weekly EUA Futures Price ICE Futures Europe 2005-2015 Weekly Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Price Development Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Vector Autoregression (VAR) Model 6 � y t = A i y t − i + c + u t (1) i =1 Where y t is the (3 × 1) vector of endogenous variables TGC price, electricity price, and EUA prices, A i are (3 × 3) coefficient matrices for lag i = 1 , · · · , 6, u t is the error term with zero mean and time invariant covariance, c is a (3 × 1) vector of constant. Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Impulse Responses: A shock from TGC Price Orthogonal Impulse Response from tgcPrice 10 5 elPrice 0 −5 −10 10 5 euaPrice 0 −5 −10 0 4 8 13 18 23 28 33 38 43 48 90 % Bootstrap CI, 100 runs Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Impulse Responses: A shock from Electricity Price Orthogonal Impulse Response from elPrice 2 0 tgcPrice −2 −4 2 0 euaPrice −2 −4 0 4 8 13 18 23 28 33 38 43 48 90 % Bootstrap CI, 100 runs Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Impulse Responses: A shock from EUA Price Orthogonal Impulse Response from euaPrice 10 tgcPrice 5 0 −5 10 5 elPrice 0 −5 0 4 8 13 18 23 28 33 38 43 48 90 % Bootstrap CI, 100 runs Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Conclusion no indication of negative effects of carbon prices on green certificate prices we find short-run positive effects price signals are in line with the goals to reduce GHG emissions and increase renewable electricity share Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Descriptive Statistics Table: Descriptive statistics (values in SEK) Obs Min Max Mean Median Stdev TGC price 558 136.80 376.00 214.16 194.25 61.74 Electricity price 558 69.89 965.97 356.46 335.40 129.80 EUA price 558 28.39 298.11 122.57 116.00 63.91 Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Model Diagnostics I (P-values) Serial Correlation Test a Normality Test b ARCH Test c Model in Levels 0.16 0 0 in First Differences 0.59 0 0 Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation (Cross-)Correlations tgcPrice tgcP & elPr tgcP & ePrc 1.0 1.0 1.0 0.8 0.8 0.8 0.6 0.6 0.6 ACF 0.4 0.4 0.4 0.2 0.2 0.2 0.0 0.0 0.0 0 5 10 15 20 0 5 10 15 20 0 5 10 15 20 Lag Lag Lag elPr & tgcP elPrice elPr & ePrc 1.0 1.0 1.0 0.8 0.8 0.8 0.6 0.6 0.6 ACF 0.4 0.4 0.4 0.2 0.2 0.2 0.0 0.0 0.0 −20 −15 −10 −5 0 0 5 10 15 20 0 5 10 15 20 Lag Lag Lag ePrc & tgcP ePrc & elPr euaPrice 1.0 1.0 1.0 0.8 0.8 0.8 0.6 0.6 0.6 ACF 0.4 0.4 0.4 0.2 0.2 0.2 0.0 0.0 0.0 −20 −15 −10 −5 0 −20 −15 −10 −5 0 0 5 10 15 20 Lag Lag Lag (a) Cross-Correlations. Schusser, Jaraite Tradeable Green Certificates

Motivation Model VAR estimation Model Diagnostics II (Stability Test) OLS−CUSUM of equation tgcPrice Empirical fluctuation process 1.0 0.0 −1.0 0.0 0.2 0.4 0.6 0.8 1.0 Time OLS−CUSUM of equation elPrice Empirical fluctuation process 1.0 0.0 −1.0 0.0 0.2 0.4 0.6 0.8 1.0 Time OLS−CUSUM of equation euaPrice Empirical fluctuation process 1.0 0.0 −1.0 0.0 0.2 0.4 0.6 0.8 1.0 Time (a) Stability of Standard VAR Schusser, Jaraite Tradeable Green Certificates