Rockets and feathers in power futures markets? Evidence from the second phase of the EU ETS

This paper examines the possibility of asymmetric transmission of CO₂ prices to electricity futures prices in the second phase of the European Emission Trading Scheme. We would like to assess whether output prices tend to respond more quickly to input price increases than decreases: this phenomenon is known as "rockets and feathers" in the literature. Compared to Zachmann and von Hirschhausen (2008), who carried out a similar analysis for Germany in the first phase of the Emission Trading Scheme with data from 2005 to 2006, our study spans a longer timeframe (July 2007-June 2010), with a presumably more mature permit market, and includes three additional European countries (France, Belgium and the Netherlands). Results do not provide empirical evidence of statistically significant differences in the response of power prices to positive and negative shocks in CO₂ allowance and fuel markets.