An empirical analysis of energy cost pass-through to CO2 emission prices

- The NARDL model is used to examine pass-through for energy and CO2 allowance prices.
- The energy prices are for crude oil, coal, natural gas and electricity in the U.S.
- This model allows one to simultaneously test for short- and long-run nonlinearities.
- Energy prices have varying symmetric and asymmetric effects on the carbon prices.
- Oil prices have asymmetric effect while natural gas prices have the opposite.

We use the nonlinear autoregressive distributed lag (NARDL) model to analyze the asymmetric and nonlinear pass-through effects of changes in crude oil prices, natural gas prices, coal prices and electricity prices on the CO2 emission allowance prices. We find that: (i) the crude oil prices have a long-run negative and asymmetric effect on the CO2 allowance prices; (ii) the decreases in the coal prices have a stronger impact on the carbon prices in the short-run than the increases; (iii) the natural gas prices and electricity prices have a symmetric effect on the carbon prices, but this effect is negative for the former and positive for the latter. These findings are robust when using both monthly and daily data and when considering bivariate and multivariate models.