Carbon Price Research Articles

Carbon pricing policies and renewable energy development: Analysis based on cross-country panel data

While studies have theoretically discussed the impact of carbon pricing on renewable energy, the practical implementation and effectiveness of these policies remain uncertain. This study empirically examines the role of carbon emissions trading and carbon tax in global renewable energy development using panel data from 196 countries and regions and employing the staggered difference-in-differences (DID) model and Bacon decomposition method. The results suggest that: (1) From the perspective of policy shocks, carbon trading has increased non-hydro renewable electricity generation by 73.32%, while carbon tax has increased it by 31.79%. This indicates that the overall impact of carbon trading on renewable energy is greater than that of carbon tax. However, the elasticity coefficients of renewable energy to carbon trading prices and carbon tax rates are 0.1801 and 0.1845, respectively, suggesting a slightly greater marginal effect of carbon tax on renewable energy compared to carbon trading. (2) Both carbon tax and carbon trading have mitigated the growth of fossil electricity and encouraged public investment in renewable energy, thereby fostering its development. (3) The influence of carbon pricing on renewable energy varies by income level; notably, the implementation of these policies in high-income countries has diminished their promotional effect on renewable energy. (4) The contribution of technological innovation to renewable energy development is smaller than that of policies including carbon trading and carbon tax, indicating that renewable energy development during the sample period was predominantly driven by policy measures. The findings indicate that the application of carbon pricing policies should be further promoted to accelerate the energy mix transition.

Close-to-nature management of tropical timber plantations is economically viable and provides biodiversity benefits

Abstract Reforestation of tropical forests is crucial to mitigate the climate crisis and restore ecosystems. However, past efforts have been criticized for establishing monoculture timber plantations with exotic tree species. Close-to-nature (CTN) practices aim to minimize negative forest management impacts on forests ecosystems by mimicking natural dynamics. So far, CTN management practices are rarely applied in tropical plantation forestry. This study evaluates the economic, carbon sequestration, and biodiversity potential of CTN management in tropical mixed-species plantations in Central America using a simulation-optimization approach. To our knowledge, this study is the first to assess the potential of tropical CTN-managed plantations on the basis of detailed process-based forest growth simulations. CTN practices such as selective harvesting, retention forestry, and shelterwood cutting of mixed-species stands were compared to even-aged mixtures and conventional monoculture practices. Results showed that CTN management was economically viable for certain species mixtures and management practices at an 8 % discount rate and had the potential to increase carbon storage and biodiversity in the modeled plantations. At current carbon prices, CTN-managed plantations may only become financially competitive with monocultures, if monocultures are excluded from carbon certification schemes that increasingly aim at co-producing non-carbon benefits like biodiversity conservation. If carbon prices increase, the sale of carbon credits could finance the transformation of monocultures to CTN-managed mixed-species stands. The competitiveness of CTN management could also be improved through performance-based biodiversity payments, such as the sale of biodiversity credits.

Hedging Carbon Price Risk on EU ETS: A Comparison of Green Bonds from the EU, US, and China

This article aims to examine the hedging effect of green bonds in the US market, the European market, and the Chinese market on carbon price risk in the European Union Emission Trading System (EU ETS) from 2021 to 2023. By using daily datasets extracted from Bloomberg and the Vector Error Correction Model (VECM), the research provides evidence of the hedging effect of green bonds in all three markets on carbon price risk in the EU ETS. The paper concludes that the hedging ratio is positive for green bonds in the EU and China, while the figure for the US market is negative. Moreover, there is a positive effect of oil prices on carbon returns in EU ETS. Meanwhile, the opposite is found for stock prices.

EU emissions trading in the buildings sector – an ex-ante assessment

ABSTRACT The EU ETS is one of the first emissions trading schemes in the world and has contributed to the reduction of greenhouse gas emissions in the sectors covered by the scheme in recent years. The EU has adopted the introduction of a new, separate emissions trading scheme (ETS 2) for the buildings and transport sectors as well additional sectors. In our paper we estimate the impact of the new ETS 2 on the buildings sector. We calculate the greenhouse gas emission reduction in the year 2030 using an approach based on price elasticities. We further discuss the impact of the ETS 2 on cost-effectiveness of heat pump deployment in the EU Member States to outline an example of longer-term effects on investments. The results show that with a carbon price of 45 Euro per ton the impact ranges between three and seven Million tons of greenhouse gas emission reductions. Even with optimistic assumptions on the reaction of building owners, the overall contribution of the ETS 2 to meeting the EU target for reducing greenhouse gas emissions in the year 2030 is limited. The results furthermore show that the carbon price needed to make heat pumps competitive in the use phase differs largely between the Member States, where in three Member States the required level exceeds 100€/t CO2eq. We conclude that in addition to carbon pricing under the ETS 2, a strong policy framework is needed for the transition of the buildings sector. Key policy insights The new carbon pricing scheme in ETS 2 contributes to the reduction of greenhouse gas emissions in buildings in the EU, however its impact on the EU energy and climate targets for the year 2030 is limited. Carbon pricing supports the diffusion of heat pumps, however a price of 45 €/t is insufficient to make heat pumps competitive even in the operation phase in several countries. Due to the low price elasticities and the long investment cycles in the buildings sector, a strong policy mix is needed in addition to carbon pricing.

An economy-wide and environmental assessment of an imported supply shortage for iron ore: The case of China

Recently, geopolitical conflicts continue to intensify, with profound effects on global supply security of key mineral resources. Considering China's high dependence on foreign iron ore, once there is an import shortage, what impacts will it have on China's macro-economy and environment? Thus, using a computable general equilibrium model, this study introduced import supply disruption behaviour to assess the economy-wide and environmental effects of a large-scale iron ore import shortage on China. Furthermore, two supporting measures of enhancing upstream mining and cancelling steel import tariffs were constructed. The results demonstrated that an import shortage of iron ore will generate a negative effect on China's GDP and household welfare, wherein the higher the disruption degree, the greater the negative effect will be, and the maximum loss of GDP is 5.6 % in 2035. Secondly, total energy demand has reduced obviously, and the largest decline is 8.8 % in 2035. Particularly, the coal demand is most negatively affected by GDP loss, shrinking by up to 11.4 % by 2035. Meanwhile, the oil and gas demands have also dropped to some degree. Thirdly, the import disruption will help to reduce carbon emissions (by up to 9.9 % in 2035), but also have obvious environmental benefits. Finally, both measures will help alleviate the negative socio-economic impacts; however, the overall effects will be better if enhancing upstream mining is complemented by carbon pricing.

Carbon price forecasting using leaky integrator echo state networks with the framework of decomposition-reconstruction-integration

Carbon trading is one of the strategies to achieve the goal of dual carbon. However, carbon prices exhibit non-stationary and nonlinear characteristics, posing significant challenges for accurate forecasting. Inspired by the ideas of “division and conquest” and “granularity reconstruction”, a decomposition-reconstruction-integration framework is built for carbon price forecasting. The proposed model leverages a comprehensive ensemble empirical mode decomposition with adaptive noise (CEEMDAN) and sample entropy (SE) to extract features from two perspectives of time and complexity, and thus the one-dimensional time series of carbon price is reconstructed into different items. Subsequently, leaky integrator echo state networks (LiESNs) are utilized to forecast each of these items individually. These individual forecasts are then integrated to generate the final point forecast. To evaluate the uncertainty of the point forecast, a Gaussian process model is applied to interval forecast. The proposed model comprehensively considers the time series features of carbon price including the temporal modal features in the decomposition stage, the entropy probability features in the reconstruction stage, and the essential temporal dependencies via dynamic reservoir of interconnected neurons in the integration forecasting stage. Experimental results demonstrate the model's exceptional forecasting performance, surpassing the effectiveness of alternative approaches.

Gypsum and structure lime amendments in boreal agricultural clay soils: Do climate emissions compromise water quality benefits?

We examine cost-effectiveness and social net benefits of using soil amendments, gypsum and structure lime, in reducing phosphorus loading while accounting for the climate emissions from both amendments. Recent field experiments and large-scale pilots in Finland and Sweden suggest that both gypsum and structure lime improve soil structure and can reduce total P loading from clayey fields but differ as soil amendments. While gypsum does not change soil pH, structure lime helps to adjust it to a desired level. Drawing on literature, gypsum is postulated to reduce both dissolved (25%) and particulate losses (50%) of phosphorus, while structure lime is postulated to reduce only particulate phosphorus (40%). Life-cycle analysis is applied to determine greenhouse gas emissions from both soil amendments. We examine 5 and 10 years impacts on phosphorus loss by choosing doses and their timing accordingly. Both amendments provide the highest water quality benefits on erodible soils or soils with high soil phosphorus. Accounting for climate issues drastically changes the picture. Greenhouse gas emissions from gypsum production are 14.43 kgCO2e ha-1, and those from structure lime from pristine materials are 1837 kgCO2e ha-1. Cost-effectiveness of P load reduction including carbon price of GHG emissions is 59 € kg-1P for gypsum and 122 € kg-1P for structure lime. At the national level (application to 0.54 Mha), differences in greenhouse gas emissions without soil emissions are huge and in favour of gypsum (0.048 Mt and 1.04 Mt). Structure lime from recycled zero-emission materials performs well but its supply is very limited.

Domestic renewable energy industries and national decarbonization policy

Does the growth of renewable energy industries catalyze national decarbonization policy? The idea that stronger domestic renewable energy industries increase the political feasibility of stringent energy and climate policies aiming to phase out fossil fuels has been championed by proponents of policy sequencing and underpins the global pivot to green industrial policy. Yet, the conditions necessary for such an effect to materialize have not been fully spelled out and its empirical veracity not been systematically scrutinized. This paper contends that the willingness and ability of renewable energy industries to influence policy should be weaker for fossil fuel phaseout policies compared to green industrial policies because of more diffuse material interests, less access to policymaking, and stronger countermobilization. The first large-scale investigation of this relation using extensive time-series cross-sectional data provides no evidence of a systematic positive effect of renewable energy industry strength on carbon pricing or fossil fuel subsidy phaseouts. These findings challenge the widespread argument that the emergence of domestic low-carbon industries translates into more ambitious decarbonization policy. Scholars and policymakers should scrutinize the mechanisms and scope conditions underlying this assumed relationship.

Carbon price time series forecasting utilizing an optimized ANFIS model

Carbon price time series forecasting utilizing an optimized ANFIS model

Spatial effects of carbon pricing on transport equity

There is an ongoing process that greenhouse gas emissions of transport will be incorporated in the European Emissions Trading System. The cap-and-trade approach will result in substantial price increases for fossil fuels which will affect affordability of the transport systems. Within this paper the regressive effect on car-owning households is described in different area categories of the urban and rural region in Germany. Equal-per-household redistribution of the carbon revenue could reverse the regressive effect into a progressive effect. However, there is substantial variation within the different economic status groups leaving notable shares of households with a very low economic status without a positive net transfer. This share will be lowest in the metropolises of the urban region and highest in small-sized cities/village areas of the urban and rural region. Particularly in the latter area categories, these households may need temporary mobility allowances due to limited abatement options. Despite the environmental bonus, electric car-owning households still belong to groups of higher economic status, and public transport supply is limited, particularly in the small-sized cities/village areas of the urban and rural region.

A novel framework for integrating environmental costs and carbon pricing in open-pit mine plans: Towards sustainable and green mining

As the worldwide need for mineral resources continues to grow, there is an increasing emphasis on mitigation of the environmental consequences of the mining sector, necessitating a shift towards sustainable and green mining practices. This paradigm requires the meticulous integration of environmental considerations throughout all stages of planning and operation in open-pit mining. Therefore, this research introduces an innovative integrated framework for long-term mine planning, strategically combining economic and environmental considerations in open-pit mining operations. The methodology integrates carbon pricing into the decision-making process, addressing potential financial risks and introducing two distinct scenarios: one focused on minimizing environmental costs and the other on maximizing adjusted Net Present Value (NPV). The application of this integrated framework to an open-pit iron mine in the Middle East region yielded insightful results. The integrated framework's impact on block sequencing, greenhouse gas emissions, and financial outcomes was assessed, highlighting the divergent strategies employed in the two scenarios. The minimization scenario demonstrated it was feasible to attain 90.54% of the global warming impact and 90.48% of environmental costs while achieving 96.25% of the adjusted NPV compared to the maximization scenario. Sensitivity analyses further underscored the adaptability of the framework to varying carbon pricing scenarios. This research validates a sustainable approach to mine planning, emphasizing a balance between economic returns and ecological responsibility, and provides valuable insights for decision-makers in the mining industry.

Biochar as a carbon dioxide removal strategy in integrated long-run mitigation scenarios

Limiting global warming to under 2 °C would require stringent mitigation and likely additional carbon dioxide removal (CDR) to compensate for otherwise unabated emissions. Because of its technology readiness, relatively low cost, and potential co-benefits, the application of biochar to soils could be an effective CDR strategy. We use the Global Change Analysis Model, a global multisector model, to analyze biochar deployment in the context of energy system uses of biomass with CDR under different carbon price trajectories. We find that biochar can create an annual sink of up to 2.8 GtCO2 per year, reducing global mean temperature increases by an additional 0.5%–1.8% across scenarios by 2100 for a given carbon price path. In our scenarios, biochar’s deployment is dependent on potential crop yield gains and application rates, and the competition for resources with other CDR measures. We find that biochar can serve as a competitive CDR strategy, especially at lower carbon prices when bioenergy with carbon capture and storage is not yet economical.

Fossil Fuel Subsidy Inventories vs. Net Carbon Prices

Price incentives for reducing fossil fuel related carbon emissions are an important component of effective and efficient climate policy. Current incentives stem from a mixture of energy taxes and carbon pricing (incentivizing less emissions) and diverse support measures for fossil fuels (incentivizing more emissions). We develop a net carbon price indicator that complements existing subsidy and carbon pricing indicators. It can be calculated on different aggregation levels and compared across countries. We calculate the different components and our aggregate indicator for the year 2018 and for eight countries including the worlds’ six largest emitters. Our analysis reveals large differences in net carbon prices across countries and across sectors within countries. We argue that the sectoral differences can inform about adequate national policy reforms while the aggregate national indicator can be useful for international negotiations about comparable national efforts.

Impact of carbon dioxide removal technologies on deep decarbonization: EMF37 MARKAL–NETL modeling results

This paper examines the MARKAL-NETL modeling results for the Energy Modeling Forum study on Deep Decarbonization and High Electrification Scenarios for North America (EMF 37) with a specific focus on carbon dioxide removal (CDR) technologies and opportunities under different scenario guidelines, policies, and technological advancements.The results demonstrate that CDR, such as bioenergy with carbon capture and storage (BECCS), direct air capture (DAC), and afforestation, are key technologies in deep decarbonization scenarios and account for 40–60 % of avoided carbon dioxide (CO2) emissions annually. From 2025 to 2050, cumulative CO2 abatement by CDR technologies will range from 37 to 47 billion tons (GtCO2), or more than 2 GtCO2 annually by 2050. The potential scale of CDR and its impact depends on the advancement and costs of energy supply and demand technologies, end-use sector electrification, and availability and costs of CDR. Results show that the price of carbon is substantially lower when advanced technologies are available, particularly in the EMF 37 carbon management scenarios [1].While BECCS deployment is likely to be constrained for environmental and/or political reasons, the results display relatively large-scale BECCS deployment. The study found that BECCS could make a substantial contribution to emissions reductions after 2035, and, in the medium term, CO2 sequestration by BECCS will depend on CO2 price; BECCS deployment starts at a carbon price of around $70/tCO2. Long-term CO2 sequestration by BECCS increases in all scenarios, reaching the same annual level of ∼890 MtCO2 by 2050 in net-zero CO2 scenarios. According to the modeling results, DAC acts as a true backstop technology at carbon prices of around $600/tCO2.

Modelling the economy-wide effects of unilateral CO2 pricing under different revenue recycling schemes in Austria – Searching for a triple dividend

In this paper we identify policy implications for implementing carbon pricing in Austria, taking into account model structure uncertainty. Methodologically, we compare the results of two macroeconomic models, DYNK (a New Keynesian model) and WEGDYN-AT (a neoclassical general equilibrium model), to evaluate the effects of carbon pricing under different revenue recycling options. Specifically, we examine the model results with respect to their findings regarding a potential triple dividend, that we define as a simultaneous materialization of i) a reduction in CO2 emissions, ii) positive effects on GDP and employment, and iii) positive and distributionally progressive effects in household consumption possibilities. Accounting for model structure uncertainty improves the robustness of our results; at least within the macroeconomic frameworks applied here. Our results confirm the tradeoff between equity and efficiency identified in previous analyses. In the New Keynesian model, but not in the general equilibrium model, we find evidence for a triple dividend for a combination of the recycling options of non-wage labor cost reductions and lump-sum per-capita transfers (“climate bonus payments”).

Distributional Impacts of Heterogenous Carbon Prices in the EU

Distributional Impacts of Heterogenous Carbon Prices in the EU

Does carbon pricing policy improve energy efficiency? New evidence from Canadian provinces

ABSTRACT Given the increasing damage effect of climate change, the Canadian government has taken a further step to ensure that carbon pricing is implemented in all provinces to reduce its GHGs emissions as a means of addressing climate change. Thus, this paper examines the effect of carbon pricing on energy consumption which is the main source of CO2 emission to enhance our understanding beyond carbon-pricing effects on households and revenue recycling in the prior research. Our study analyzes the energy efficiency of Canada using the province-level data between 2000 and 2021, by developing an SFA production model to understand the drivers of energy consumption and then compute the total factor energy efficiency index while controlling for the role of carbon pricing. Our empirical results reveal that increased labor input, as well as output, mitigate the rising capital-induced energy consumption, while carbon pricing policy plays no significant role in influencing energy consumption. However, the effectiveness of carbon pricing is found in reducing province-level energy efficiency. This striking evidence suggests that policymakers should consider a labor-oriented energy saving scheme and conduct a comprehensive review of the current carbon pricing policy in order to align with energy efficiency interventions toward the achievement of Canada’s Paris Agreement targets.

Testing the Emissions Reduction Effect of Carbon Pricing: A Predictive Analysis of the Role of Speculation

We employ both ex-post and ex-ante approaches to determine the role of speculation in the emissions reduction effect of carbon pricing and its forecasting power in the predictability of climate change. We use several verifiable econometric approaches to select the Feasible Quasi Generalised Least Squares (FQGLS) as the best estimator for addressing some of the biases in climate change predictability. We demonstrate that a predictive model combining the complementing dynamics of carbon pricing forecasts climate change more accurately. We demonstrate the robustness of our findings for both in-sample and out-of-sample forecasts and across different forecast horizons.

Demand-pull and technology-push environmental innovation: a policy mix analysis on EU ETS and EU Cohesion Policy

ABSTRACT Existing literature on the sustainability transition towards a low-carbon economy provides conceptual frameworks for designing combinations of policy interventions but lacks empirical evidence regarding their application. This paper aims to test whether a mix of policy instruments represents a potential valid solution to manage carbon abatement effectively. We refer to the European Union Emissions Trading System (EU ETS) as an example of demand-pull environmental policy, while we include the Structural and Cohesion Funds (SCFs) and the Horizon 2020 funds as examples of technology-push policies. Through the application of a panel event study, we find that the EU ETS generates a positive impact on environmental patent applications in the light manufacturing sector during the period 2013–2020, while EU ETS participation and financial support contribute to environmental innovation and CO2 emission reduction in the energy sector. Hence, those sectors where market dynamics allow avoidance of complete internalization of the carbon price may benefit from financial support to re-direct the technological change towards the sustainability transition. We demonstrate that the analysed policy mix contributed to a reduction of about 2.2% of total emissions produced by energy firms in the EU ETS during Phase III, which is in line with EU climate targets. Overall, our work may support policymakers in understanding the relevant factors that affect the impact of the policy mix on the environmental transition.

Implied threats of the Red Sea crisis to global maritime transport: amplified carbon emissions and possible carbon pricing dysfunction

Recent military acts in the Red Sea and Gulf of Aden are forcing merchant ships to reroute, thereby driving up international shipping rates, prolonging delivery dates, and causing additional greenhouse gas emissions. Utilizing the European Union (EU) Monitoring, Reporting, and Verification emissions database and real time Automatic Identification System data, this study conducted frequency analysis and causative investigation on container ships circumnavigating the Cape of Good Hope. The findings indicate that the current policy framework under the EU Emissions Trading System (EU-ETS) poses a higher risk of carbon leakage, particularly for medium and small-sized container ships, thereby undermining the effectiveness of the nascent EU maritime carbon pricing. If the crisis continues, combined with anticipated tighter emission regulations, this risk is expected to escalate. International maritime policy administrators should make timely adjustments in response to the chain reactions caused by war, enhancing the robustness of cross-regional carbon pricing.