Allocation Of Emission Allowances Research Articles

Optimization of Initial Carbon Emission Allowance Allocation in Industrial Industries: A Case Study of Zhejiang Province, China

The construction of carbon market is one of the important means for China to reach the goal of carbon peaking and carbon neutrality, and the allocation of initial carbon emission right quota is the key link in carbon market transaction. At present, the historical method is the commonly used allocation method of initial carbon emission rights in China, and the use of this method is unfair and inefficient. Therefore, this paper proposes an allocation optimization model, selects a number of indicators, and optimizes the allocation of initial carbon emission rights based on the hierarchical analysis method and entropy weight method. Example analysis shows that the allocation optimization model helps to share the carbon emission responsibility and improve the allocation efficiency, realizes the optimal allocation of initial carbon emission rights among industrial sectors, and provides support for the emission reduction of industrial sectors.

Carbon and financial performance nexus of the heavily polluting companies in the context of resource management during COVID-19 period

The depletion of fossil fuels and the new EU climate policy goals to achieve a zero-emission economy after 2050 encourage highly polluting companies to increase the efficiency of energy conversion from non-renewable energy sources, develop renewable energy sources and implement resource management systems in production. Studying the relationship between environmental performance and financial performance of firms is particularly important in times of the Covid-19 pandemic, as companies' decisions to limit or continue green investments and low-emission transformation may impact access to external financing sources. The aim of this study is to identify the shape of the relationship between the carbon and financial results of heavily polluting enterprises in the context of resource management and to assess the impact of the Covid-19 pandemic on the considered relationship. For a panel sample of Polish enterprises representing highly polluting industries with manufacturing plants covered by the EU ETS in 2009–2021, a third-degree polynomial describing this relationship was estimated. A U-shaped relationship was identified between carbon emission intensity and return on sales and return on assets, which can be explained by the ‘too-little-of-a-good-thing’ effect. Increase in share of renewable energy in the production structure significantly reduces firms’ profitability, which can be explained by the relatively high costs associated with the development of renewable energy and the changing legal regulations regarding this type of investment. It has been shown that companies with high carbon emission intensity achieved lower sales profits and return on assets compared to companies with lower carbon intensity during the Covid-19 pandemic. The lower scale of allocation of free emission allowances compared to previous years, combined with the increase in emission allowance prices under the influence of shocks generated by the pandemic, had a negative impact on the profitability of heavily polluting companies. The modelling results provide important information to managers who, based on them, can make more informed decisions regarding the use of natural resources in production and the involvement of enterprises in investments aimed at the use of cleaner production technologies and the development of renewable energy.

An integrated zero-sum game and data envelopment analysis model for efficiency analysis and regional carbon emission allocation

As the global economic environment changes, the concept of green and sustainable development has become the international community’s consensus. As a participant in the worldwide emission reduction plan, China is also under great pressure to reduce carbon emissions. As an example, this study constructs an optimal scheme for regional carbon emission allowance allocation in Hunan Province, China. We first forecast the total carbon emissions in 2030 for each city, state, and major industry in Hunan Province through a scenario and then innovatively use the mass function allocation theory in marketing to sort out the logical ideas of the optimization model. More importantly, we combine the zero-sum game theory to build the zero-sum game-data envelopment analysis model to continuously reallocate the carbon emission allowances of each city and state and major industries in Hunan Province until the optimal allocation scheme is reached. From the perspective of each city and state, the initial carbon emission efficiency level of fourteen cities in Hunan is high, but there are still some differences. From the perspective of industries, the initial efficiency of carbon emission of six major industries in Hunan is lower, and the difference in efficiency values is evident.

A two-stage stochastic programming approach for reserving and allocating of emission trading permits under uncertainties

ABSTRACT The Emissions Trading Scheme (ETS) is a market-based approach aiming at reducing greenhouse gas (GHG) emissions. It involves the allocation of emission allowances to entities that are permitted to emit certain levels of GHG, as well as the re-sale and re-allocation of these allowances among entities. Considering the uncertainty of urban traffic congestion, the problem of reserving and allocating Emission Trading Permits (ETP) under stochastic demand is investigated. The ETP reserve of each link is determined before congestion, the optimal allocation scheme of ETP is determined after congestion. A two-stage stochastic programming model is formulated to minimize the sum of the reserve cost of ETP before congestion and the expected total loss of ETP after congestion. First, the effectiveness of the stochastic programming model is verified by comparing with the traditional method. Second, the total cost increases with the increase of initial reserve cost and shortage cost, and decreases with the increase of selling price and the capacity of links by sensitivity analysis. The unit reserve cost has a negative effect on the reserve quantity, while shortage cost, selling price, and link capacity have a positive effect on the reserve quantity. At last, the validity of the stochastic programming solution can be verified by numerical analysis of the Nguyen-Dupuis network. The stochastic programming solution proposed in this study shows an 89% reduction in ETP reserve compared to the optimal initial capacity solution. When level E occurs, the total cost is correspondingly reduced by 11%.

The impact of electricity-carbon market coupling on system marginal clearing price and power supply cost.

In this study, we assessed the impacts of the benchmark designs of emissions allowance allocation in China's national carbon emissions trading system with plant-level data and further estimated the marginal clearing price and power supply cost in Guangdong power market under electricity-carbon market coupling with unit commitment and economic dispatch model. We find that the existing allowances benchmark would result in a considerable surplus of allowances at about 222 Mt. But the benchmarking and exemplary levels on the heat rate of power supply would motivate thermal power units to reduce CO2 emissions. Under a tight balance of supply and demand in Guangdong, peaking thermal power plants will become the marginal clearing units and higher clearing prices will add to the revenue of lower cost inframarginal renewable energy power units. However, the combined impact of electricity-carbon market coupling would cause the marginal clearing price fluctuates obviously from 0 to 1159 CNY/MWh. Compared to the baseline scenario with free CO2 allowances allocation, the efficiency of thermal power utilization would decrease by 23%-59% and the net revenue per MWh power supply of coal-fired power units would decrease by 275%-325% under the stress scenario. Our study suggests that setting a more stringent allowances allocation benchmark for carbon price discovery is necessary. As electricity-carbon market coupling changes the role of coal-fired power plants to provide flexibility service and decrease their revenues, it calls for further market designs on proper reimbursement of flexible resources, under which the electricity market can effectively achieve the synergy among accommodating new energy, ensuring resource adequacy, and delivering cost efficiency. In addition, the synergy can be enhanced by formulating a tax program, which can promote renewable energy investment.

Carbon emission allowance allocation based on a bi-level multi-objective model in maritime shipping

To mitigate carbon emissions from maritime shipping, this study investigates the strategies and performance of allocating carbon emission allowances (CEAs) with the cap-and-trade mechanism among shipping companies. Using a bi-level model solved by the multi-objective particle swarm optimization algorithm based on Pareto solution set, the interactions between decisions of the government and shipping companies are well characterized. The results of the benchmark scenario indicate that all shipping companies’ optimal carbon emissions decrease annually during the planning period, and a larger company usually exhibits a better emission reduction performance. However, economic benefits of shipping companies and the society display an annually declining trend due to additional carbon emission reduction costs. The sensitivity analysis demonstrates that the decreasing carbon prices lead to more emissions, while the optimal total carbon emissions decrease as carbon reduction costs increase. These findings create implications for multiple stakeholders to formulate their own carbon emissions mitigation strategies under the cap-and-trade mechanism.

Emphasizing egalitarianism in the allocation of China's provincial carbon emission allowances

China plans to allocate the provincial carbon emission allowances (CEA), but the CEA scheme has not been determined. Uncertain decisionmaker preferences lead to the uncertainty of the CEA scheme, hindering provinces from setting climate targets. Thus, we investigate different CEA schemes under various preferences from the fairness—efficiency perspective. We developed a CEA scheme set (consisting of 176851 CEA schemes) based on four criteria: egalitarianism, capacity, responsibility, and efficiency. By constructing a desirability evaluation index, we find the most desirable CEA schemes corresponding to various preferences from the CEA scheme set. The results show that egalitarianism can co-improve fairness and efficiency on top of the existing CEA scheme. Relying mainly on egalitarianism supplemented by efficiency is a desirable allocation mode for any decisionmaker. Regardless of the preferences, these situations generally exist: 1) Guangdong and Shandong will get the highest CEA; 2) Municipalities directly under the central government and less developed provinces will get the lowest CEA; 3) North, Northwest, and Northeast China will bear high emission reduction pressures before 2030. These findings will provide essential guidance for decisionmakers in formulating CEA schemes and provinces in formulating emission reduction policies.

Greenhouse gas emission indicators, energy consumption efficiency, and optimal carbon emission allowance allocation of the EU countries in 2030

The 2030 Climate Target Plan of the European Union (EU) has set a goal of reducing carbon emissions by 55%, but while carbon emissions have attracted the attention of scholars, past research has two shortcomings. Studies have focused on carbon emission allocation that occurred in the past, but seldom forecasted carbon emission allocation in the future. Moreover, most research has focused on carbon dioxide emissions with other greenhouse gases receiving less attention. To fill this gap in the literature, this research has two contributions. First, it uses the entropy method to design greenhouse gas emission indicators and to evaluate the weight of each greenhouse gas in carbon emissions. Second, this study applies data envelopment analysis to predict the optimal carbon emission allocation for the EU in 2030. This paper presents the following results. (1) Energy consumption efficiency and carbon emission efficiency for Denmark, Greece, Ireland, Luxembourg, Malta, Sweden, and United Kingdom are the best. (2) Non-renewable energy consumption efficiency in most countries needs to be improved.

German stakeholder perceptions of an EU carbon border adjustment mechanism

The European Commission has proposed a carbon border adjustment mechanism (CBAM) that would apply the carbon price prevailing in the EU emissions trading system to import-related emissions. We conducted a survey to study perceptions of an EU CBAM among German key stakeholders from industry, civil society, and research in July 2021. We find that substantial support for CBAM exists as well as the expectation that the mechanism will eventually be introduced. We identified divergent views on key design options among stakeholder groups. Stakeholders from industry generally favour the continuation of free allocation of emissions allowances, rebates for exporters from the EU, coverage of only scope 1 emissions, and use of revenues for domestic spending. Stakeholders from civil society prefer phasing out free allocation, coverage only of imports, an emissions scope including all indirect emissions, exempting low-income countries and countries that do implement non-price-based climate policies, and the use of revenues to finance green transformation in low-income countries. Respondents from research would generally rather see free allocation being phased out, emissions coverage of scope 1 and 2, exemptions for low-income countries and countries that do implement non-price-based policies with comparable effects in relevant sectors and a transfer of revenues to support clean technologies in low-income countries and green technologies in the EU. Our survey design allows us to identify three cross-stakeholder group clusters, one containing stakeholders who are comparably more hesitant towards CBAM, a second one with respondents most in favour of introducing CBAM, as well as a ‘middle ground’ cluster which contains views that are often in between the other two. We also compare the survey responses to the design of the Commission’s CBAM proposal to identify the most likely points of political disagreement.

Allocation of emission allowances considering strategic voting

The initial allocation of carbon emission rights among different generating units is an important element in the initial stage of the construction of the carbon emission market for the power system, and is also the focus of attention in the construction of the current carbon market for the power system in China.In practical situations, a variety of equity principles have been utilized in different allocation problems. However, conflicts always exist among these principles. It is necessary to justify and coordinate different allocation schemes.This paper tries to apply the axiomatic method and social choice theory to propose an axiomatic and fair allocation method based on iterative election and establish a mathematical model for the fair allocation of initial carbon emission rights in power systems. This paper studies the game equilibrium problem under the iterative election allocation mechanism, and describes the finite rationality of participants in a complex environment by means of the “local optimal search” and “greedy algorithm”.The general equilibrium under specific conditions and the game equilibrium under four axiomatic allocation strategies (namely UG, UL, PRO, T) are analyzed and solved in detail by introducing the method of strict preference ordering list. Finally, some real-world case studies are carried out to show that the iterative election allocation algorithm can satisfy the main principle of fair allocation and the given allocation results are easily accepted by each unit owner.This study not only provides a reasonable and feasible path for China's power system to realize the scientific research on the fair distribution of initial carbon emissions and the practicability of distribution methods, but also provides profound policy enlightenment for the construction of carbon emission market in China's power industry.

Allocation of provincial carbon emission allowances under China's 2030 carbon peak target: A dynamic multi-criteria decision analysis method

To balance China's socio-economic development and emission reduction goals, a fair and effective provincial carbon emission allowance (CEA) allocation is necessary. By considering the implied emissions of inter-provincial power transfer, this study designed a dynamic multi-criteria CEA allocation model based on four criteria-egalitarianism, historical responsibility, emission reduction capability, and emission efficiency-to calculate the provincial CEA year by year before 2030. The efficiency and fairness of the CEA scheme were evaluated through the Data envelopment analysis (DEA) model, the environmental Gini coefficient, and its grouped decomposition method. The national overall CEA, the results revealed, will peak during the 15th Five-Year Plan (FYP) period. Specifically, the CEA for eastern and central China is expected to peak first during the 14th FYP period, while the northeast region's CEA remains stable and that of the western region continues to grow. Provinces with high carbon emissions, high carbon emission intensity and high per capita carbon emissions and provinces with particularly high carbon emissions will face great pressure regarding emission reduction, and their CEA peaks are expected to arrive before 2025 and 2030 respectively. The CEA of the less-developed provinces will have a surplus. In terms of time, the high-emission provinces face greater emission reduction pressure during the 15th FYP period than during the 14th FYP period. In terms of scheme evaluation, the scheme achieved a double improvement in fairness and efficiency compared with the current actual emissions of various provinces. Reducing the differences in per capita CEA between the different regions and provinces in the western and eastern regions will help improve the scheme's fairness. This study overcomes the existing researches' shortcomings on the large differences in the distribution of emission reduction pressures in key provinces and is more feasible in practice.

An Optimization Study of Provincial Carbon Emission Allowance Allocation in China Based on an Improved Dynamic Zero-Sum-Gains Slacks-Based-Measure Model

In order to achieve its 2030 carbon emission peak target, China needs to adjust and allocate energy consumption and initial carbon emission allowances for each province in a phased and planned manner. Thus, this study applied an improved dynamic undesirable zero-sum-gains slacks-based-measure (ZSG-SBM) model to evaluate provincial CO2 emission reduction scenarios and energy allocation for 2015–2019 and calculate the optimal allocation values of carbon emission allowances for each province in 2030. The results showed that China’s allocation efficiency values for total energy exhibited rising and then declining trends during 2015–2019 and that most input–output term efficiency values had room for improvement. Furthermore, after four adjustment iterations of the improved dynamic undesirable ZSG-SBM model, the modeled China achieved optimal carbon emission efficiency for the whole country. In the final model, 19 provinces were allowed to increase their carbon emissions in 2030, while the remaining 11 provinces needed to reduce their emissions. The findings of this paper can help regulators to establish fairer and more effective policy solutions to promote regional synergistic emission reduction, achieve the national goal of peak total carbon emissions, and promote the green, coordinated, and sustainable development of China’s economy.

Auction design for the allocation of carbon emission allowances to supply chains via multi-agent-based model and Q-learning

Auction design for the allocation of carbon emission allowances to supply chains via multi-agent-based model and Q-learning

Legitimacy and Consistency of Free Allocation in the EU ETS: The Role of Substitutes in Product Benchmarks

The EU emission trading system (ETS) is the primary tool for reducing greenhouse gas emissions (GHG) and combating climate change. Free allocation of emission allowances plays an important role within this system, and will continue to do so, also after the European Commission’s ‘Fit for 55’ proposal package. This article discusses the determination of free allocation by use of product benchmarks, and the assessment of substitutability under the product benchmark system, and how they relate to the legitimacy and proper functioning of the ETS. It is argued that a coherent, ETS-specific test should be applied when the Commission assesses the substitutability that underpins the product benchmarks, and that full judicial review is warranted going forward, akin to that deployed by the EU courts in competition cases. Emission trading system, EU ETS, free allocation, benchmark, substitute

THE REGIONAL ROLES ALONGSIDE THE EVOLUTION OF CARBON TRANSFER STRUCTURE WITHIN CHINA: A PERSPECTIVE FROM THE NATIONAL VALUE CHAIN

To strengthen the national efforts to meet Paris Agreement Targets, China has announced its carbon neutrality goal in 2020 and launched the national carbon market in 2021. Regional carbon emissions accounting is important for the allocation of regional mitigation targets and emission allowances in the policy-making of the national carbon market. This paper integrates the trade in value-added (TiVA) accounting method to comprehensively analyze the evolution of the carbon emissions transfer network in China along the national value chain (NVC) and further clarifies the changing roles of regions participating in the network during 2007–2017. The results indicate that the inter-regional carbon emissions transfer structure in China has changed from the pattern of “transferring from inland areas to developed areas” to a new pattern of a “carbon emissions transfer network with the Yangtze River Delta and the Central regions as pivots”. This paper provides insightful results for China to strike a balance between economic development and environmental governance among regions in achieving carbon neutrality.

Allocation of Emission Allowances Considering Strategic Voting

Allocation of Emission Allowances Considering Strategic Voting

Does Carbon Risk Matter? Evidence of Carbon Premium in EU Energy-Intensive Companies

In this paper we have assessed the impact of the European Union’s Emissions Trading Scheme (EU ETS) on the level of the carbon premium. The aim of the study is to determine whether there is a stable carbon premium in energy-intensive sectors. Unlike other studies, our research sample included not only companies in the energy sector, but also entities classified as energy-intensive. In the research, we used our own criterion for allocating companies to a clean and dirty portfolio, which made it possible to make the estimation of the carbon premium more resistant to changes in the rules for allocation of emission allowances. We detected a positive, statistically significant carbon premium in the years 2003–2012 and a negative one in the years 2013–2015, but we did not detect a statistically significant carbon premium in the period 2016–2019. This means that there are no grounds for concluding that there is a stable, positive carbon premium for energy-intensive companies subject to the EU ETS over time. We have also noticed that a significant problem in studying the impact of the EU ETS on the carbon premium is the use of static portfolios of clean and dirty companies

Going Green by Putting a Price on Pollution: Firm-level Evidence from the EU

This paper shows that, when the price of emission allowances is sufficiently high, emission trading schemes improve the emission efficiency of highly polluting firms. The efficiency gain comes from a relative decrease in emissions rather than a relative increase in operating revenue. Part of the improvement is realized via the acquisition of green firms. The size of the improvement depends on the initial allocation of free emission allowances: highly polluting firms receiving more emission allowances for free, such as firms on the carbon leakage list, have a weaker incentive to become more efficient. For identification, we exploit the tightening in EU ETS regulation in 2017, which led to a steep price increase of emission allowances and made the ETS regulation more binding for polluting firms.

국제기후변화법제와 국제통상법체제의 조화적 공존을 위한 법적고찰 : 탄소배출권 무상할당조치와 WTO 보조금협정을 중심으로

2015년 12월 파리협정이 채택됨에 따라 교토의정서 체제를 대체하는 신기후체제가 도입되었다. 이에 따라 탄소배출에 가격을 부여하여 온실가스 배출비용을 부담하도록 하는 소위 탄소가격제(carbon pricing)의 시행이 점차 확대되어 가고 있으며, 여러 국가들은 온실가스 감축을 위한 주요 수단으로서 배출권 거래제의 시행을 확대해가고 있다. 최근 미국의 철강업체들은 유럽 및 한국의 탄소배출권 거래제를 보조금의 측면에서 문제 삼고 있으며, 특히 탄소배출권 무상할당이 상계관세 부과의 대상이 되는 보조금이라고 주장하고 있다. 보조금은 무역 및 경쟁에 왜곡을 초래할 수도 있으나 시장실패 방지 또는 다른 합법적 정책목표를 추구하는데 이용된다는 측면에서 양면적 속성을 지닌다. 그런데 ASCM은 환경정책 측면에 입각한 정당화 가능성을 인정하지 아니하고 협정의 기계적 적용결과에 따라 보조금 여하를 판단하도록 하는 내재적 한계가 있다.BR 탄소배출권 무상할당조치는 각국의 불균형적인 환경규제정책에 따라 발생하는 탄소누출의 문제를 방지하기 위한 주요 수단이다. 보조금 논리에 의해 탄소배출권 무상할당이 불가능하게 된다면 기후변화법제상 의무 준수가 어려워 질 수도 있다. 탄소배출권 무상할당조치를 보조금 협정 규율에 비추어 검토하고, 국제기후변화법제와 국제통상법체제가 조화적으로 공존할 수 있는 방안을 모색하여야 한다.

Border carbon adjustments and industrial competitiveness in a European Green Deal

ABSTRACT As part of the European Green Deal, the EU is considering the introduction of a Border Carbon Adjustment (BCA) on imports as an alternative to free allocation of emission allowances to reduce the risk of carbon leakage under the EU’s Emissions Trading System (EU ETS). While a BCA for exports is not categorically excluded, it is less likely to be consistent with World Trade Organisation rules and therefore less likely to be proposed than an import-only BCA. In this paper, we show that replacing free allocation by an import-only BCA would weaken the competitiveness of EU producers in foreign markets. Free allocation also helps support the cost competitiveness of domestic products that are exported to non-EU markets. Therefore, a move to import-only BCAs does not necessarily make redundant the continued use of free allocation to help safeguard overall industrial competitiveness. While combining an import BCA with free allocation for exports can increase the risk of legal challenges, such risks may be reduced with an appropriate design. More broadly, policymakers need to navigate a complex trade-off between competitiveness support, a stronger carbon price signal, and extra fiscal revenue. Key policy insights A BCA on imports levels the playing field in domestic EU markets but does not provide competitiveness support to exports Therefore, a move to an import-only BCAs does not obviate the need for free allocation to safeguard overall industrial competitiveness While combining an import-only BCA with free allocation for exports increases the risk of legal challenges, such risks may be reduced with an appropriate design