Abstract
China, taking the concept of sustainable development as the premise, puts forward Intended Nationally Determined Contributions (INDC) to reduce the greenhouse gas emissions in response to climate change. In this context, with the purpose of seeking solutions to a carbon financial market pricing mechanism to build China’s carbon finance market actively and thus achieving the goal of sustainable development, this paper, based on the autoregressive integrated moving average (ARIMA) model, established a carbon price prediction model for the carbon financial market, and studied the relationship between Certified Emission Reduction (CER) futures prices and spot prices, as well as the relationship between European Union allowances (EUA) futures prices and CER futures prices in an empirical manner. In this paper, EUA and CER futures prices of the European Climate Exchange (ECX) and EUA and CER spot prices of the BlueNext Environmental Exchange were selected as research objects. Granger causality test, co-integration test, and ECM were used to form a progressive econometric analysis framework. The results show that firstly, the ARIMA model can effectively predict carbon futures prices; secondly, CER futures prices cannot guide spot price, and the futures pricing function does not play a role in this market; thirdly, EUA futures price can, in the short term, effectively guide the trend of CER futures prices, with the futures pricing function between the two markets. In the long run, however, the future pricing function of the two markets is not obvious. Therefore, great differences among maturity of the two markets, degree of policy influence, and market share lead to the failure of long-run futures pricing functions.
Highlights
To address the global climate change, achieve the sustainable development of harmonious coexistence of human beings and nature, and sustainable utilization of the ecological environment [1,2,3], three trading mechanisms were creatively proposed in the Kyoto Protocol to realize quantification, pricing, and trading of global carbon emissions, and artificially create a carbon market [4,5,6,7]
This paper established a price prediction model of the carbon market with the autoregressive integrated moving average (ARIMA) model and conducted in-depth research on the relationship between Certified Emission Reduction (CER) futures prices and spot prices, and European Union allowances (EUA) futures prices and CER futures prices in the EU carbon market based on the price prediction model, so as to provide technical support and a reference basis for China’s carbon market to introduce a futures pricing mechanism, allow domestic clean development mechanism (CDM) project owners to enjoy international carbon market share, improve market profit space, realize financial innovation and development, and compete for pricing power of products
Taking the European Climate Exchange, the largest international carbon market, as an example, the carbon products traded in this market are mainly carbon futures and carbon options products, accounting for more than 80% of the total international carbon trading volume every year
Summary
With the vigorous development of EUA futures, the European Climate Exchange (ECX) launched another Certified Emission Reduction (CER) futures contract in March 2008 [14] Both allowances—and project-based trading markets in the international carbon market—have launched corresponding futures derivatives. This paper established a price prediction model of the carbon market with the autoregressive integrated moving average (ARIMA) model and conducted in-depth research on the relationship between CER futures prices and spot prices, and EUA futures prices and CER futures prices in the EU carbon market based on the price prediction model, so as to provide technical support and a reference basis for China’s carbon market to introduce a futures pricing mechanism, allow domestic CDM project owners to enjoy international carbon market share, improve market profit space, realize financial innovation and development, and compete for pricing power of products. The price discovery function of futures trading can effectively solve the pricing problem
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