Short communication: Effect of carbon emission trading on European Union butter prices.

Affiliation

School of Accounting and Finance, University of Vaasa, Wolffintie 34, Vaasa-65200, Finland. Electronic address: [Email]

Abstract

Since its inception, the European Union (EU) carbon emission market has been vastly successful in reducing greenhouse gas emissions. Accordingly, the usage of environmentally friendly fuels (e.g., ethanol, biodiesel) has increased significantly over the last few years. Given that EU biodiesel is mainly produced from rapeseed oil and soybean oil, higher carbon taxes are likely to increase the demand of these important vegetable oils, which further affects the prices of its close substitute such as butter. Nevertheless, the association between the EU emission trading scheme and butter prices remains understudied. In this paper, we aim to fill this vacuum in the existing literature. Applying the autoregressive distributed lag bound testing procedure, we show that emission market seems to have a long-term effect on EU butter prices, implying that changes in the levels of carbon taxes will lead to changes in the price level of butter. These results are of vital importance to policymakers and investors.

Keywords

European Union,biodiesel,butter price,carbon emissions,vegetable oil,