A Unified Analysis of Emissions and Energy Market Interactions Across the EU

Insights are offered into the interactions of EUA and CER emissions prices with key energy markets across the EU. A wide range of regional gas and power markets, in addition to global oil markets, are considered. Power prices are broken down by base, peak and off-peak to account for regional differences in generation. Significant interactions are shown to exist in Phase II of the EU ETS. NBP and Zeebrugge gas markets are shown to Granger cause both EUA and CER prices. Furthermore, it is shown that the Polish, German, Italian, Dutch and Austrian power markets exert a causal effect on EUA and CER markets through base and peak prices in particular. Rationalising these observations, Poland and Germany are shown to be heavily dependent on coal for power generation, whereas Italy, the Netherlands and Austria are significantly dependent on a mix of coal, oil and gas.