Journal
ENERGY ECONOMICS
Volume 114, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.eneco.2022.106257
Keywords
EU ETS; Carbon prices; Fuel prices; Renewable energy; Wavelets
Categories
Funding
- Yonsei University Future-Leading Research Initiative 2021 [2021-62-0014]
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This study analyzes the relationship between the price of carbon-intensive fuel and the stock prices of renewable energy companies by using wavelet methods to reconstruct time series. The results show a negative effect of coal prices on renewable energy stock prices, which can be explained by the negative relationship between coal and carbon prices, as well as the positive relationship between carbon prices and renewable energy stock prices.
In this study, we analyze the relationship between the price of carbon-intensive fuel and the stock prices of renewable energy companies, incorporating the price of carbon in the European Union emissions trading system (EU ETS). Specifically, we employ wavelet methods to reconstruct time series with specific levels of persistence, reducing noise, trend, and seasonal components. Using these wavelet-adjusted series, we conduct a regression analysis that considers exogenous factors that may influence the demand for electricity and emissions allowances. Subsequently, we estimate vector autoregressive models and obtain a connectedness measure and impulse response functions. The results consistently imply that increases in coal prices have (counterintuitively) a negative effect on renewable energy stock prices. Moreover, we show that this can be explained by a negative relationship between coal and carbon prices and a positive relationship between carbon prices and renewable energy stock prices. Our study contributes to the literature by uncovering the negative relationship between the price of carbon-intensive fuel and renewable energy stock prices by applying a suitable filtering procedure.
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