Carbon Emission Trading Scheme Research Articles

Climate Change Beyond Environmentalism Part I: Intersectional Threats and the Case for Collective Action

This paper is part I of a two-part series of papers exploring the intersectional threats of climate change, its discriminatory impacts on the economically disadvantaged, people of color, women, children, and animals; and the unique role animals play as both a cause of climate change emissions and some of its front-line victims. The paper discusses the failure of regulatory institutions to provide meaningful solutions to the climate change problem, and why the 900,000,000 people living in extreme poverty, the native communities literally disappearing into the sea in Alaska and elsewhere, the 600,000,000 people living less than ten meters above sea level, and the more than 140,000,000,000 wild animals caught in climate change’s cruel grasp cannot afford to wait for incremental emissions reduction plans, carbon emission trading schemes, or other efforts to “stabilize” or normalize global warming emissions. The paper argues for the immediate engagement of the animal protection community due to the impending loss of billions of wild animals, and makes the case for reactivation of the historic alliance between animal protection and environmental advocates as a first step towards a more holistic and inclusive climate coalition effort.

Impacts on CO2 Emission Allowance Prices in China: A Quantile Regression Analysis of the Shanghai Emission Trading Scheme

A pilot regional carbon emission trading scheme (ETS) has been implemented in China for more than two years. An investigation into the impacts of different factors on carbon dioxide (CO2) emission allowance prices provides guidance for price-making in 2017 when the nation-wide ETS of China will be established. This paper adopts a quantile regression approach to estimate the impacts of different factors in Shanghai emission trading scheme (SH-ETS), namely, economic growth, energy prices and temperature. The empirical analysis shows that: (i) the economic growth in Shanghai leads to a drop in the carbon allowance prices; (ii) the oil price has a slightly positive effect on the allowance prices regardless of the ordinary least squares (OLS) or quantile regression method; (iii) a long-run negative relationship exists between the coal price and the Shanghai emission allowances (SHEA) prices, but a positive interaction under different quantiles, especially the 25%–50% quantiles; (iv) temperature has a significantly positive effect at the 20%–30% quantiles and a conspicuous negative impact at the right tail of the allowances prices.

Can environmental innovation facilitate carbon emissions reduction? Evidence from China

Environmental innovation has been recognized as an efficient way of addressing environmental problems. However, how environmental innovation may affect carbon emissions in China and whether the effect may differ among various environmental innovation variables remain to be investigated. Therefore, based on the panel data of China’s 30 provinces during 2000–2013, we use a system generalized method of moments (SGMM) technique to estimate the effect of environmental innovation on carbon emissions in China. Also, we evaluate the effect on carbon emission reduction of China’s initial carbon emissions trading (CET) scheme. Empirical results indicate that, most environmental innovation measures in China reduce carbon emissions effectively. Among the various environmental innovation factors, energy efficiency exerts the most evident effect on carbon emissions abatement in China; meanwhile, resources for innovation and knowledge innovation also play prominent roles in this regard. However, the impact of governmental environmental policies on curbing carbon emissions reduction suffers from a lag effect, which mainly occurred during 2006–2013. Finally, despite the short time of operation and incomplete market mechanism, the pilot CET in China has appeared relatively promising with regard to carbon emissions reduction.

Planning carbon dioxide mitigation of Qingdao's electric power systems under dual uncertainties

Coupling with rapid economic development and continual urban expansion, CO2 as the dominant contributor to the greenhouse has aggravated the global climate change, such that achieving the joint goal of increasing electricity demand and mitigating CO2 emission become crucial to plan electric power systems (EPS). Various complexities and uncertainties exist in the real-world EPS problems, which can affect the optimization processes as well as the generated decision schemes. In this study, a two-stage interval-possibilistic programming (TIPP) method is developed for planning carbon emission trading (CET) in the EPS of Qingdao (China), where dual uncertainties expressed as interval-random variables and interval-possibilistic parameters can be handled. Techniques of support vector regression (SVR) and Monte Carlo simulation are used for predicting electricity demand and CO2 emission. Four scenarios corresponding to different CO2-emission permits and CO2-mitigation levels have been analyzed. Results reveal that coal-fired power is the primary CO2-emission emitter, and it tends to the transition to renewable energy-dominated power with the CO2-mitigation levels from 5% to 30% (e.g., contributing to 0.6% increment of renewable energies and [30.8, 33.1] % reduction of treated CO2 emissions). Compared to without CET scheme, CO2 emissions can be reduced about 5% under the CET, demonstrating that CET can help to promote the cleaner production of the local electricity. The findings can help decision makers reallocate carbon permits among different emitters effectively, provide appropriate mitigation plan for CO2-emission, as well as to improve environmental and sustainable EPS planning.

Optimal feed-in tariff for solar photovoltaic power generation in China: A real options analysis

The feed-in tariff policy is widely used to promote the development of renewable energy. China also adopts feed-in tariff policy to attract greater investment in solar photovoltaic power generation. This study employs real options method to assess the optimal levels of feed-in tariffs in 30 provinces of China. The uncertainties in CO2 price and investment cost are considered. A method that integrates the backward dynamic programming algorithm and Least-Squares Monte Carlo method is used to solve the model. The results demonstrate that the feed-in tariffs of 30 provinces range from 0.68 RMB/kWh to 1.71 RMB/kWh, and the average level is 1.01 RMB/kWh. On this basis, we find that the levels of sub-regional feed-in tariff announced in 2013 are no longer appropriate and should be adjusted as soon as possible. We have also identified the implications of technological progress and carbon emission trading schemes, as well as the importance of strengthening electricity transmission. It has been suggested that the Chinese government takes diverse measures, including increasing research and development investment, establishing and improving a nationwide carbon emission trading scheme and accelerating the construction of electricity-transmission infrastructure, to reduce the required feed-in tariff and promote the development of solar photovoltaic power generation.

Carbon Pricing: Design, Experiences and Issues, edited by LarryKreiser, MikaelAndersen, BirgitteOlsen, StefanSpeck, JanetMilne and HopeAshiabor. Published by Edward Elgar Publishing, Cheltenham, UK, 2015, 256 pages. ISBN: 9781785360220, ₤75.

Carbon Pricing: Design, Experiences and Issues, edited by LarryKreiser, MikaelAndersen, BirgitteOlsen, StefanSpeck, JanetMilne and HopeAshiabor. Published by Edward Elgar Publishing, Cheltenham, UK, 2015, 256 pages. ISBN: 9781785360220, ₤75.

Biomass Power Generation Investment in China: A Real Options Evaluation

This paper proposes a real options model for evaluating the biomass power generation investment in China. The uncertainties in the market price of electricity, CO2 price and straw price are considered. Meanwhile the dynamic relationship between installed capacity and fuel cost, as well as the long-term reduction of subsidy are described. Two scenarios, i.e., with the carbon emission trading scheme existent and non-existent, respectively, is built to empirically analyze the investment of a 25-MW straw-based power generation project. The results show that investors should undertake the investment in 2030 under two scenarios. Investment values are 14,869,254.8 and 37,608,727 Chinese Yuan (RMB), respectively. The implementation of the carbon emission trading scheme theoretically helps improve investment value and advance the most likely optimal investment time. However, the current CO2 price is not sufficient to advance the most likely optimal investment time. The impacts of several factors, including subsidy policy, CO2 price, straw price, installed capacity, correlation structure and the validity period of investment, on the optimal investment strategy are also examined. It is suggested that governments take some measures, including increasing subsidy, setting the growth pattern of subsidy and establishing and perfecting a nationwide carbon trading market, to improve the investment environment and attract more investments.

Interprovincial allocation of China's national carbon emission allowance: an uncertainty analysis based on Monte-Carlo simulations

Trade-offs between economic development and carbon emission reductions, as well as their uncertainties, are great challenges for climate change negotiations. This article focuses on the equality of China's national carbon allowance allocations for provincial economic development while taking into account the uncertainties in provincial economic output and business-as-usual carbon emission. The allocation equality assessment under an uncertainty model was developed based on the Gini coefficient of accumulated carbon emission per unit of gross domestic product (GDP) and Monte Carlo simulations. It was used to compare the equity and related provincial carbon abatement burdens between the grandfathering allocations under an absolute cap and the output-based benchmarking allocations under a relative cap. The results showed that the volatilities of national carbon abatement and accumulated carbon emission per unit of GDP were more stable under the relative cap. The benchmarking mechanism resulted in a more equitable allowance allocations for provincial economic development and mitigated shocks in provincial output volatility to the equity of national overall allowance allocations. This mechanism was expected to produce a more evenly distributed carbon abatement burden-sharing across provinces, and to reduce the uncertainties of provincial carbon abatements. The benchmarking mechanism is thus proposed as an appropriate choice for China's current equitable provincial carbon allowance allocations.Policy relevanceThe trade-off between economic development and carbon emission reduction is the most controversial issue in climate change negotiations. The uncertainties in economic outputs and carbon emission also pose great challenges. With the obvious imbalance and uncertainty in provincial developments, the equitable allocation of carbon allowances among provinces is the key for China to develop a national carbon emission trading scheme. The comparison of allocation mechanisms under uncertainty provides more practical suggestions for policy making in China. Benchmarking results in more equitable allowance allocation and yields more even and stable abatement burden-sharing across provinces. It narrows the gaps in economic development emissions rights between developed and less developed provinces, and mitigates the shocks of provincial outputs and business-as-usual emissions to the overall allocation equity and provincial carbon abatement burdens. This benchmarking is suggested as a reasonable choice for China's provincial carbon allowance allocation method.

Efficient auction mechanisms for carbon emission trading scheme

This paper argues several auction mechanisms, and examines their allocation efficiency for carbon emission rights. Given the definitions of the demand correspondence and the efficient allocation, we obtain that: (1) under the English auction with the 'going, going, gone' ending rule, the straightforward bidding strategy is dominant in the sense that it makes the bidders avoid the risk of loss, and the bidding strategy leads to an efficient assignment; (2) under the sequential ascending auction and the Vickrey auction, truth-telling is not only the most preferred bidding strategy to the bidders, but also an efficient allocation strategy; (3) under the dynamic process auction, sincere bidding is a weakly dominant bidding strategy and the associated allocation is efficient; and (4) in the first-price auction, the bidders have the symmetric Bayes-Nash equilibrium bidding strategy, while the seller's revenue equals that in the Vickrey auction and is higher than that in the uniform-price auction.

The impact of Chinese carbon emission trading scheme (ETS) on low carbon energy (LCE) investment

China is planning to introduce emission trading scheme (ETS) to decrease CO2 emission. As low carbon energy (LCE) will play a pivotal role in reducing CO2 emissions, our paper is to assess the extent and the conditions under which a carbon ETS can deliver LCE investment in China. We chose wind technology as a case study and a real-option based model was built to explore the impact of a number of variables and design features on investment decisions, e.g. carbon and electricity price, carbon market risk, carbon price floor and ceiling and on-grid ratio. We compute critical values of these variables and features and explore trade-offs among them. According to our work, a carbon ETS has a significant effect on wind power plant investment although it cannot support investment in wind power on its own. Carbon price stabilization mechanisms such as carbon price floor can significantly improve the effect of carbon ETS but the critical floor to support investment is still much higher than the carbon price in China pilot ETSs. Our results show that other policy measures will be needed to promote low-carbon energy development in China.

Impacts of carbon trading scheme on air pollutant emissions in Guangdong Province of China

This study aims to assess the impacts of carbon emission trading scheme (ETS) policy on air pollutant emission reduction in Guangdong (GD) Province, especially with respect to the embedded air pollutant emission flow caused by carbon ETS. A Computable General Equilibrium (CGE) model is constructed to project the local emission trajectory of CO2 and air pollutants under business as-usual (BaU) and policy scenarios in GD province and the rest of China from 2007 to 2020. To achieve the energy and carbon intensity targets, the carbon constraint and ETS policy are employed to promote energy saving and CO2 emission reduction. The simulation results show that the carbon ETS has the co-benefits of reducing SO2 and NOx emissions by 12.4% and 11.7% in 2020 compared with the BaU scenario. Along with the carbon trading volume of 633milliontons created by the ETS scenario, an embedded amount of 38,000tons of air pollutants is exchanged among carbon trading sectors, which valued about 50 million USD. Although the current carbon and air pollutant emission markets are independent from each other, the evaluation of the co-benefits needs to be considered further in the policy making process.

순회배송 물류전략에서 탄소배출 비용의 효과 분석

This paper develops an analytic model for minimizing the cost of distributing items by truck from one supplier to many customers under Milk run logistics strategy. The model derives formulas for not only inventory and transportation costs but also costs associated with carbon emission trading scheme. In addition, monetary investment for reducing carbon emissions is considered. We analyze how to determine optimal shipment size and carbon emission reduction investment. The purpose of this work is to evaluate the effects of carbon emission trading scheme on the Milk run logistics strategy in terms of how much to reduce carbon emissions and/or inventory and transportation costs. We analytically show that it is possible to reduce carbon emissions while reducing inventory and transportation costs by introducing cap-and-trade carbon emission trading scheme under certain conditions.

Is carbon emissions trading profitable?

The European Carbon Emissions Trading Scheme introduced in 2005 has led to both spot and futures market trading of carbon emissions. However, despite seven years of trading, we have no knowledge on how profitable carbon emissions trading is. In this paper, we first test whether carbon forward returns predict carbon spot returns. We find strong evidence on both in-sample and out-of-sample predictability. Based on this evidence, we forecast carbon spot returns using both carbon forward returns and a constant. We consider a mean-variance investor and a CRRA investor, and show that they have higher utility and can make more statistically significant profits by following forecasts generated from the forward returns model than from a constant returns model.

Do Emission Trading Schemes Facilitate Efficient Abatement Investments? An Experimental Study

Cap-and-trade programs, such as the EU carbon Emission Trading Scheme, are currently the most prominent market-based method used to reduce carbon emissions. Cap-and-trade programs are, on theoretical grounds, considered to be a cost-efficient method. Experimental evidence, however, shows that experimental subjects make highly inefficient abatement choices and that permit allocation methods (allocating permits for free or against payment) bias subjects to too much or too little abatement. The experimental evidence thus suggests that cap-and-trade programs may in practice be more costly than theory predicts. This study, however, challenges this interpretation and shows that, when they are price takers (as in thick markets) and have ample opportunities for learning, subjects quickly learn to make accurate decisions and that these decisions are not affected by the permit allocation method.

Marginal CO2 abatement costs: Findings from alternative shadow price estimates for Shanghai industrial sectors

Shanghai, one of the most developed cities in China, is implementing a pilot regional carbon emission trading scheme. Estimating the marginal abatement costs of CO2 emissions for the industrial sectors covered in Shanghai's emission trading scheme provides the government and participating firms useful information for devising compliance policies. This paper employs multiple distance function approaches to estimating the shadow prices of CO2 emissions for Shanghai industrial sectors. Our empirical results show that the overall weighted average of shadow price estimates by different approaches ranges between 394.5 and 1906.1Yuan/ton, which indicates that model choice truly has a significant effect on the shadow price estimation. We have also identified a negative relationship between the shadow price of CO2 emissions and carbon intensity, and the heavy industries with higher carbon intensities tend to have lower shadow prices. It has been suggested that Shanghai municipal government take various measures to improve its carbon market, e.g. using the marginal abatement costs of participating sectors/firms as a criterion in the initial allocation of carbon emission allowances.

Lobbying for and Against Subsidizing Green Energy

We consider a small open economy that operates a carbon emission trading scheme and subsidizes green energy. Taking cap-and-trade as given, we seek to explain the subsidy as the outcome of a trilateral tug of war between the green lobby, the brown lobby and the consumer lobby. With parametric functions we fully solve the competitive economic equilibrium and the lobbying Nash equilibrium. The rate of the green subsidy results from complementary or opposing political pressures of the three interest groups. If the brown lobby is stronger than the green one, our main results are (i) that the outcome of the three-party lobbying game is a green tax, if preferences are not green, and (ii) that green consumer preferences are necessary but not sufficient for generating a green subsidy in the lobbying game.

Achieving Copenhagen target through carbon emission trading: Economic impacts assessment in Guangdong Province of China

This study analyzed the economic impacts of carbon ETS (emission trading scheme) policy among four energy intensive sectors in Guangdong province with a two-region dynamic CGE model. Five cases are considered to achieve Copenhagen target towards 2020 in Guangdong, including a reference case, two cases under different carbon emission constraints without carbon ETS, and two cases with ETS. The simulation results show that carbon price and economic impacts are closely related to both emission constraints and ETS. In the scenario that overshoots Copenhagen target and does not consider ETS, carbon mitigation cost of refinery and iron & steel sectors would be relatively higher whereas that of power and cement sectors would be lower, and the GDP (gross domestic production) loss would be 1.4%. On the contrary, with ETS implemented, the trading carbon price would be 38 USD (US Dollar)/ton-CO2, creating a carbon market of around 1 billion USD. Furthermore, ETS could significantly reduce the mitigation cost for the whole economy. The GDP of Guangdong province would recover by 2.6 billion USD. In addition, the economic output and employment of sectors with would be affected compared to the scenario without ETS.

The Valuation Relevance of Greenhouse Gas Emissions under the European Union Carbon Emissions Trading Scheme

This study examines the valuation relevance of greenhouse gas emissions under the European Union Carbon Emissions Trading Scheme. We posit that carbon emissions affect firm valuation only to the extent that a firm's emissions exceed its carbon allowances under a cap-and-trade system and the extent of its inability to pass on carbon-related compliance costs to consumers and end-users. We measure a firm's ability to pass on the future costs by its market power and its carbon performance relative to its industry peers. The results show that firms' carbon allowances are not associated with firm valuation but the allocation shortfalls are negatively associated. We also find that the negative association between firm values and carbon emission shortfalls is mitigated for firms with better carbon performance relative to their industry peers and for firms in less competitive industry sectors. These findings, which suggest that the valuation impact of carbon emissions is unlikely to be homogenous across firms or industrial sectors, have important implications for future research design and for the disclosure and recognition of a firm's greenhouse gas liabilities.

Economic Consequences of Carbon Tax and Carbon Emission Trading Scheme in Intensive Carbon Emission Enterprises

Abstract. The paper constructed cost function, carbon emission function, calculated cost-reduction sensitivity coefficient, set four policy scenarios as different combination of carbon tax, carbon emission trading scheme and subsidy with six policy levels, and selected 30 listed companies from intensive carbon emission industry as research samples. The results show that carbon emission trading scheme has better economic consequences, and the combination of carbon emission trading scheme with subsidy is the best carbon emission reduction policy.

Advancing the experiment to reality: Perspectives on Shanghai pilot carbon emissions trading scheme

Shanghai, as the most advanced mega city in China, has launched a pilot carbon emission trading scheme (SH-ETS) that is designed to achieve a compromise between the domestic context in Shanghai, and a need for national policy appeal. This paper gives an overview of the latest progress of the SH-ETS and sheds some light on the features of key design components, such as the threshold for inclusion, sector coverage, cap setting, allowance allocation and the Monitoring, Reporting and Verification (MRV) system. Based on a concern that manipulative principles and economic dynamics may lead to uncertainties and ultimately influence the emission reduction effect of the scheme, this paper conducts an evaluation of potential uncertainties, such as those caused by changes in patterns of economic growth, strategic trading activities related to the bankable allowances, carbon leakage risks and insufficient MRV capabilities. To advance the experiment to reality, this paper suggests some changes are made to the pilot, which include adjusting the allowance allocation principles to facilitate change in the domestic energy structure, improving the disclosure of emission data to guarantee information symmetry, gauging the carbon leakage risks to strengthen compliance, and introducing risk management for non-regulated players and derivatives products.