Abstract
In this paper, a network model is constructed using real trading data from the EU carbon market. Metric indicators are then introduced to measure the network, and the economic meanings of the indicators are discussed. By integrating time windows with the network model, three types of network features are examined: growth features, structural features, and scale-free features. The growth pattern of the carbon trading network is then analyzed. As the market grow, the geodesic distances become shorter and the clustering coefficients become larger. The trends of these two indicators suggest that the market is evolving towards efficiency; however, their tiny changes are insufficient to have significant impact. By modeling the heterogeneity of the carbon trading network, we find that the trading relationships between firms obey a broken power law model, which consists of two power law models. The broken power law model can be approximately defined as a traditional power law but with a longer tail in distribution. Furthermore, we find that the model is valid for most of the time of both phases, the model only invalid when the market approaches a high growth rate.
Highlights
Emission trading schemes (ETS) are one of the preferred tools for combating climate change.Following the cap-and-trade principle, they are a cost-effective method for reducing greenhouse gas (GHG) emissions
Phase I and II, Φ is set to 6 months to ensure data sufficiency for the initial time window, and ∆t is set to 1 month based on the tradeoff between information loss and computational load
The nodes represent the firms which participate in the European Union Emission Trading Scheme (EU ETS), and the edges are their trading relationships
Summary
Emission trading schemes (ETS) are one of the preferred tools for combating climate change. Following the cap-and-trade principle, they are a cost-effective method for reducing greenhouse gas (GHG) emissions. Several countries and regions have launched emissions trading schemes, including the European Union, Japan, South Korea, and China. The biggest one by far is the European ETS; known as the European Union Emission Trading Scheme (EU ETS), which includes more than 11,000 heavily emitting installations from 31 European countries, representing more than 45% of Europe’s overall GHG emissions. In the EU scheme, the right to emit CO2 is represented by carbon allowances, primarily the European Union Allowances (EUA). In the first two phases of the EU ETS, EUAs were freely allocated to emitters according to their emission history. A deficiency of allowances compared to actual emissions brings emitters a penalty; emitters trade and buy allowances from each other, giving emitters with spare allowances an incentive to sell their allowances [1,2]
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