A Perspective of Evolution for Carbon Emissions Trading Market: The Dilemma between Market Scale and Government Regulation

This paper considers a carbon emission cap and trade market, where the carbon emission cap for each entity (either government or firm) is allocated first and then the carbon trading price is decided interdependently in the carbon trading market among the non-cooperative entities which make their production decision. We assume that there are n entities emitting carbon during the production process. After allocating the carbon (emission) cap for each participating entity in the carbon cap and trade market, each participant makes a production decision using the Newsvendor model given carbon trading price determined in the carbon trading market and trades some amount of its carbon emission, if its carbon emission is below or above its own carbon cap. Here, the carbon trading price depends on how carbon caps over the entities are allocated, since the carbon trading price is determined through the carbon (emission) trading market, which considers total amount of carbon emission being equal to total carbon caps over entities and some fraction of total carbon emission should be from each entity participating in the carbon cap and trade market. Thus, we can see the interdependency among the production decision, carbon cap and carbon trading price. We model this as a non-cooperative Stackelberg game in which carbon cap for each entity is allocated in the first stage and each entity’s production quantity is decided in the second stage considering the carbon trading price determined in the carbon trading market. First, we show the monotonic property of the carbon trading price and each entity’s production over the carbon cap allocation. In addition, we show that there exists an optimality condition for the carbon cap allocation. Using this optimality condition, we provide various results for carbon cap and trade market.

The presence of new devices with their new technology makes the optimal scheduling of energy hub’s operation more complicated and challenging, however brings more flexibility. Power to gas as one of recent type of energy storages, can enable the energy hub in carbon trading market based on its carbon recycling feature. Participation in carbon emission trading market can be considered as suitable option for reducing the operation cost. In this paper, an energy hub included power to gas technology has been investigated. In addition to power to gas, the combined heat and power unit beside the gas powered boiler make the different energy conversion to each other possible. District heating network among market context has been considered as well as electricity. The demand response program as one of smart grid’s strategies has been employed beside the other control variables of energy hub. Finally, the uncertainties of problem such as demands, renewable sources production, prices are handled by using stochastic optimization method. A mixed integer linear programming formulation has been proposed for optimization of defined energy hub’s operation. The output results demonstrate that added flexibility by participation in carbon emission trading market and demand response program are capable for 2% reduction of operation cost.

This study explores the degree and change of informational efficiency of the European Union (EU) carbon emission trading market using an asymmetric multifractal detrended fluctuation analysis (A-MF-DFA) method, which allows asymmetry. For this purpose, we analysed the daily price series of the European Emissions Market, which is operated according to the European Union Emissions Trading Scheme. This carbon market is the most active and has the largest trading volume. The data covers the period (from 4 August 2005 to 31 December 2019). The main results are summarised as follows. First, there is a multifractal feature in the price return movements of the EU carbon trading market, which behaves differently in the upward and downward periods of the market. Second, the informational efficiency of the carbon emission market has changed over time, with Phase I having the lowest informational efficiency and Phase III having the highest informational efficiency. These results indicate that informational efficiency has increased as the carbon emission market matures. Third, from the result of the market deficiency measure (MDM), Phase I showed the lowest market efficiency, whereas Phase III showed the highest efficiency. During Phase III, the MDM values of the upward period were higher than that of the downward period, implying higher market inefficiency during the upward period.

Clarifying the time-varying spillovers among pilot carbon emission permit trading markets in China is an important foundation for building the national carbon emission trading market. We calculate the dynamic spillover of carbon price return among the pilot carbon emission permit trading markets in China with the time-varying connectedness approach. The dataset is constructed from transaction data from seven pilot carbon markets in China during the period of June 23, 2014, to December 31, 2020. The quantitative analysis suggests that (i) Beijing and Chongqing carbon emission trading markets are the main spillover markets of carbon price returns, with strong pricing power, while the Guangdong and Tianjin markets are the main receivers of the price return spillover in other pilot carbon emission trading markets. (ii) The spillover effect among China’s carbon markets has a strong policy orientation. The improvement and development of the carbon market driven by macroeconomic regulation and control policies can effectively improve the spillover ability of the carbon market, and the market trading activity, namely the volatility of the carbon price return rate, can amplify the spillover ability of the carbon market in the short term. (iii) There exist three types of price return spillover among China’s pilot carbon emission trading markets, including central divergence, one-way chain transmission, and circular spillover. Along with the improvement of market operation efficiency, the central divergent type of spillover shifts to the pattern of circular spillover. It is necessary for the government to improve market efficiency and ensure the coordinated development of China’s pilot carbon emission trading market and national carbon emission trading market.Supplementary InformationThe online version contains supplementary material available at 10.1007/s11356-022-19914-4.

Market incentives, carbon quota allocation and carbon emission reduction: Evidence from China's carbon trading pilot policy.

China's National Carbon Emissions Trading Market officially launched online trading on July 16, 2021. Based on the externality theory and Coase's Theory of Property, this paper calculates the carbon emission costs of the eight key carbon emission industries under the mechanism of China's carbon trading market. The study shows that, under the current scenario of free allocation of initial quotas, the carbon emission cost of the eight major industries in China accounts for an average of 0.05% of the income. However, when the initial quotas are paid, and the allocation proportion is 100%, the carbon emission cost of each industry increases significantly, accounting for an average of 0.92% of the income. It is concluded that the carbon emission quota control and China's carbon trading market mechanism will increase the carbon emission cost to a certain extent, thus encouraging enterprises to update technology and replace energy to achieve energy conservation and emission reduction. Under the background of the national unified market and given China's “carbon peaking and carbon neutrality” goal, the article puts forward four measures, including expanding the scope of industry participation in carbon trading, changing the amount of free carbon quota, formulating a reasonable total amount of carbon quota, and promoting the integration of local carbon market into the national carbon market, aiming to promote the carbon emission trading market to help China reduce carbon emission.

As the development of technologies that can reduce carbon emissions and the conversion of energy production methods have not produced particularly meaningful effects, major countries have high expectations for the effect of regulating the total amount of carbon emissions through the carbon emission market. Since Korea is a country that emits a lot of greenhouse gases, it operates a carbon emission market with a large transaction volume. For this market to show the expected effect, the movement of the emission permit price must be efficient. So this study analyzed whether the carbon emission market in Korea is efficient, comparing it with the European emission market. To this end, the time-varying Hurst exponent was measured using daily data of Korea's KAU and Europe's EUA Futures markets. The main results are summarized as follows. First, the degree of informational efficiency of the price movement of carbon emission market is time-varying. Second, in both the Korean and European carbon markets, transaction prices did not move randomly at many times, and there were many inefficient periods in both markets. Third, the long memory characteristics were stronger and the inefficiency was more severe in the KAU market than in the EUA market. Fourth, although the informational efficiency of KAU market has generally improved since 2022, it has not yet reached the level of efficiency implied by the efficient market hypothesis. These results mean that despite the government's efforts so far, the emission trading market is not functioning sufficiently. Therefore, it is necessary to continuously improve the emission trading system in a way that can reduce carbon emissions through the market function.

Along with the continuous development of the pilot carbon trading market and the construction of a uniform CET market, it is essential to establish a reasonable allocation method for carbon emissions consistent with the development of the CET market in China. The reasonable allocation of carbon allowances is a key means to ensure the efficiency of the carbon emission trading system. China's carbon emission trading market is still in its initial phase, and there are still some problems to be improved in terms of carbon quotas. This paper compares the allocation system of China's carbon emission rights with that of the international carbon emission rights allocation system. It compellingly explores China's carbon emission right allocation system in recent years. Based on the strict baseline requirements, the paper makes innovative proposals to allocate carbon emission allowances based on auction allocation, supplement them with free distribution, and provides reasonable suggestions for developing the trading market of carbon emission rights in China.

As an essential measure to mitigate the CO2 emissions, China is constructing a nationwide carbon emission trading (CET) market. The electric power industry is the first sector that will be introduced into this market, but the quota allocation scheme, as the key foundation of market transactions, is still undetermined. This research employed the gross domestic product (GDP), energy consumption, and electric generation data of 30 provinces from 2001 to 2015, a hybrid trend forecasting model, and a three-indicator allocation model to measure the provincial quota allocation for carbon emissions in China’s electric power sector. The conclusions drawn from the empirical analysis can be summarized as follows: (1) The carbon emission peak in China’s electric power sector will appear in 2027, and peak emissions will be 3.63 billion tons, which will surpass the total carbon emissions of the European Union (EU) and approximately equal to 2/3 of the United States of America (USA). (2) The developed provinces that are supported by traditional industries should take more responsibility for carbon mitigation. (3) Nine provinces are expected to be the buyers in the CET market. These provinces are mostly located in eastern China, and account for approximately 63.65% of China’s carbon emissions generated by the electric power sector. (4) The long-distance electric power transmission shifts the carbon emissions and then has an impact on the quotas allocation for carbon emissions. (5) The development and effective utilization of clean power generation will play a positive role for carbon mitigation in China’s electric sector.

Carbon Emission Trading (CET) Market is a complex and dynamic system involving multiple participants, variety of behavioral decisions and numerous economic, government policy and others. Behaviors which are influenced by the changes in the market will also affect the performance and development of the market. Making a prototype of China’s current CET market, attributes, behavior rules and decision models of agents are designed applying complex systems modeling and simulation, combined with object-oriented analysis. A CET market simulation system is built based on SWARM to simulate and analysis the dynamic actors in CET market by transferring the related modules. To examine the validity and accuracy, Shanghai CET market is simulated as an experiment.

The carbon emissions trading market is an important policy tool for the implementation of the “double carbon” goal, and the study of carbon emission quotas is an important topic for promoting green transformation, energy savings, and emission reduction in enterprises. This paper surveys the development and construction history of China’s carbon trading market, uses the VOS-viewer measurement tool to analyze the keywords co-occurrence and evolution trend of the literature about the carbon trading market from 2005 to 2024, analyzes the research hotspots, and reviews the principles of the initial carbon quota allocation, carbon quota distribution methods, and the carbon trading market carbon quota mechanism under the model construction, etc. The following conclusions can be drawn: (1) The most commonly used principles for allocating initial carbon quota are the principle of equity, the principle of efficiency, and the principle of synthesis. The equity principle focuses on the capacities and burdens of different participants; the efficiency principle maximizes incentives for participants to reduce carbon emissions; the comprehensive principle allocates carbon allowances from the perspective of enterprises, with less consideration for social responsibility and economic benefits. (2) In terms of carbon quota allocation, the initial quota should be gradually tightened, and the proportion of paid quotas should be increased. (3) The types of participants in the carbon emission reduction supply chain model are relatively simple. This paper analyzes the current situation of the research on carbon emission quota, discusses its development rules and problems, and puts forward theoretical and practical suggestions for the better development and construction of China’s unified carbon market in the future.

As electricity price regulation in China hinders the transmission of carbon costs to electricity consumers, whether and how the national carbon emissions trading (CET) market should cover electricity indirect carbon emissions (EICEs) are critical practical issues. Using a computable general equilibrium (CGE) model, this paper investigates the impacts of the CET market covering EICEs and applying different EICE accounting methods, providing new insights for CET market policy design. The results show that: (1) Although the CET market covering EICEs raises regulated sectors' carbon and production costs and reduces sectoral outputs and GDP, it is conducive to reducing electricity and fossil energy consumption, optimizing power supply structure, and thus reducing direct and indirect carbon emissions. (2) Compared with the locational EICE accounting method, the market-based method can alleviate the negative economic impacts caused by covering EICEs and significantly reduce carbon emissions at lower costs. Based on the findings of this paper, the authors propose targeted policy recommendations.

Carbon emission performance and quota allocation in the Bohai Rim Economic Circle

A multi-criteria decision analysis model for carbon emission quota allocation in China's east coastal areas: Efficiency and equity

A cooperative game analysis for the allocation of carbon emissions reduction responsibility in China's power industry