Permit price dynamics in the U.S. SO₂ trading program: A cointegration approach
2012
Boutabba, Mohamed Amine | Beaumais, Olivier | Lardic, Sandrine
The aim of this paper is to study empirically the determination and the dynamic behavior of the SO₂ permit prices. Previous research focused on ex-post market price analysis without taking weather conditions into account. Therefore, this study attempts to fill a gap in the literature by providing new empirical evidence on the SO₂ price evolution and its interactions with macroeconomic variables, microeconomic variables and climate variables. Using monthly data from January 1995 to December 2006, our estimation results indicate the existence of a long-term relationship between SO₂ permit price, scrubbing costs, industrial production, and weather conditions. In the short run, SO₂ permit price is affected by scrubbing costs, energy prices, and weather conditions. Policy makers and private investors could benefit from the findings of this study that provides useful information on the characteristics of the SO₂ market and may plan their strategy.
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