China’s Carbon Pricing Based on Heterogeneous Tail Distribution

Yaqi Wu,Chen Zhang,Zulfiqar Ali Wagan,Yu Yang,Xianzi Yang,Po Yun

doi:10.3390/su12072754

Yaqi Wu, Chen Zhang + Show 4 more

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https://doi.org/10.3390/su12072754

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Abstract

To address climate change, the carbon emission trading scheme has become one of the main measures to achieve emission reduction goals. One of the core problems in constructing the carbon emissions trading market is determining carbon emissions trading prices. The scientific nature of carbon emissions pricing determines the effectiveness of market regulation. Research on the influencing factors and heterogeneous tail distribution of carbon prices can increase the accuracy of carbon pricing, which is particularly important for the development of the carbon emissions trading market. The current studies have some limitations and lack heterogeneous tail description. We employ the arbitrage pricing theory-standardized standard asymmetric exponential power distribution model to analyze China’s regional carbon emissions trading price and use a genetic algorithm to solve linear programming. The results confirm the theoretical results and efficiency of the proposed algorithm. First, the new model can capture the skewness, fat-tailed distribution, and asymmetric effects of China’s regional carbon emissions trading price. Second, the macroeconomy, similar products, energy price, and exchange rate influence the carbon price fluctuation; investors’ behavior plays an important role in the heterogeneous tail distribution of carbon price. The findings provide references for the government to take appropriate measures to promote carbon emission reduction and improve the effectiveness of China’s carbon market. Therefore, our findings can help enhance emission reduction and achieve sustainable development of a low-carbon environment.

Highlights

Climate change is induced in part by carbon dioxide emissions
By reviewing of the relevant literature that focused on carbon pricing, we found that: (1) studies largely did not consider the heterogeneous tail distribution; studies mainly focused on international carbon price, and only a few considered China’s carbon price with no economic explanation and (2) studies about China’s carbon pricing have not provided an economic explanation of influencing factors and largely did not consider the heterogeneous tail distribution
This section begins with data analysis and follows with selection of influencing factors, which were used to verify the hypothesis

Summary

Introduction

Climate change is induced in part by carbon dioxide emissions. Mitigation of carbon dioxide (CO2) emissions has become an urgent environmental goal. The Paris Agreement was adopted in 2015. The Paris Agreement is the first international climate agreement that extends mitigation obligations to all countries. The low-carbon economy became a top agenda for many countries after the Paris meeting. About 100 parties, accounting for 58% of global greenhouse gas (GHG) emission, have already implemented some policy measures to decrease CO2 emissions. The emission trading scheme has become the most effective emission reduction method. More and more countries and regions have turned to the cap-and-trade scheme to control carbon emissions

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