Carbon price prediction for China's ETS pilots using variational mode decomposition and optimized extreme learning machine.

Abstract

With the national goal of “carbon peak by 2030 and carbon neutral by 2060 in China”, studies on carbon prices of China’s Emissions Trading System (ETS) pilots have shown growing interest in the related fields. Carbon price fluctuations reflect the scarcity of carbon resources, and accurate prediction can improve carbon asset management capabilities. Therefore, in order to clarify the dynamics of carbon markets and assign carbon emissions allocation rationally, we propose a hybrid feature-driven forecasting model with the framework of decomposition-reconstruction-prediction-ensemble. In this paper, the non-stationary, nonlinear and chaotic characteristics of carbon prices in China’s ETS pilots have been verified, and then the prediction model is built based on the tested features. Firstly, the original carbon price series are decomposed by Variational Mode Decomposition (VMD), and then reconstructed by Sample Entropy (SE). Next, Extreme Learning Machine (ELM) optimized by Particle Swarm Optimization (PSO) is conducted to predict the subsequences. Lastly, the forecasting series of every subseries are summed to obtain the final results. The empirical results based on carbon prices of China’s ETS pilots proved that the proposed model performs more efficiently than the current benchmark models. As carbon prices are expected to increase across all ETS during the post-COVID-19 recovery stage, the new prediction model will be useful for improving the guiding principles of the existing government policies including the likely introductions of Border Carbon Adjustment (BCA) in the EU and the US, and governing the large global public companies to deliver their “net zero” commitments.