Carbon Quota Allocation Research Articles

Interaction between product strategy selection and the carbon quota allocation policy

The interaction between the government’s carbon reduction policy and a firm’s product strategy has not been well studied in the literature. This paper considers the government’s two different carbon quota allocation policies for the cap-and-trade scheme and the firm’s two product strategies and investigates the interaction between them by establishing a theoretical model and deriving the optimal decisions. This paper first examines the firms’ selection of low-carbon products or ordinary product strategies under the government’s two carbon quota allocation policies and then studies the government’s optimal carbon quota allocation policy for overall social welfare, which is based on the firm’s two product strategies. Our analysis reveals that (i) when the government allocates carbon quotas aimed at reducing the firm’s total carbon emissions, the firm will choose the low-carbon product strategy. When the government allocates a carbon quota aimed at optimal total social welfare, the firm’s decision depends on the impact of total carbon emissions. (ii) To achieve optimal social welfare, the government will formulate different carbon quota allocation policies on the basis of firms’ different product strategies.

On the economic growth and environmental quality nexus in India

ABSTRACT This study extends prior research and takes a robust account of the effects of economic growth on environmental quality in India, using several single-equation and system estimators and considering multiple structural breaks over ‘long’ as well as ‘short’ time periods. The long-run model is estimated on annual data for the period 1951–52 to 2015–2016. The results provide robust support for the positive and significant effects of gross domestic product and financial development and for the negative effects of trade openness and domestic investment on carbon dioxide emissions. The presence of structural breaks challenges the validity of smooth and continuous relationship between income and emissions postulated in previous research. Policy intervention, in terms of the imposition of Pigouvian tax, allocation of carbon quotas and promotion of carbon ‘cap-and-tax’ and/or ‘cap-and-trade’ systems, is needed to correct market failure, to cover the external cost of pollution and to curtail the emission of carbon. It is worth subsidizing alternative sources of energy, adopting carbon-efficient technologies and switching to carbon-neutral substitutes.

Interpretation of Fairness Concept and Economic Impact Analysis of Carbon Quota Allocation between Industries in Indonesia

Abstract Quota allocation is critical in implementing supporting policies for carbon reduction efforts, such as the carbon cap and trade mechanism. Depending on the allocation rules, certain company types may benefit more economically. Inequality conditions can happen and reduce the willingness to participate in sustainability efforts. This study aims to propose fairness interpretations in the context of company-level carbon quota allocation. Four industries in Indonesia with inherently different emission and financial profiles were selected as case studies: energy, oil palm, basic materials, and finance. Fairness principles were analyzed to represent the interests of companies based on their financial and environmental performance. Indicators were selected to quantify the equality principles and aggregated into a Comprehensive Index (CI) for quota allocation, where the companies’ quota surplus/deficit is quantified into monetary value to estimate the economic impact with varying reduction targets. According to our analysis, the sectoral advantages/disadvantages would depend on the viewpoint of fairness principles, and the oil palm and financial sectors be less impacted than the basic materials and energy sectors with increased emission reduction targets. The sensitivity analysis suggests that the vertical, horizontal, polluter pays, and historical responsibility principles are more sensitive to weighting than the merit and basic needs principles.

The effect of carbon quota allocation methods on maritime supply chain emission reduction

In September 2020, the European Parliament decided to include the CO2 emitted on the all intra-European and 50% of extra-European voyages in the European Union Emission Trading System (EU-ETS) starting from 2022, in order to reduce the CO2 emission. With the implementation of EU-ETS, the maritime supply chain will inevitably be significantly affected. Different carbon quota allocations in ETS have different impact on the CO2 emission reduction, which motivates us to investigate the effect of different carbon quota allocations on maritime CO2 emission reduction. Therefore, this paper considers two carbon quota allocations: the historical total quantity method and the historical intensity method, and develops a game model for each method. Then, the equilibrium solutions of each game model are analyzed. With the help of the system dynamics and the software Vensim, numerical experiments are conducted to verify the properties obtained in the analysis of the equilibrium solutions. The experimental results indicate that 1) Green technology (GT) can effectively reduce carbon emissions. Based on long-term simulation results, the GT investments will be gradually offset by profiting from carbon quota trading. 2) Profits may vary with price, but the Historical Intensity method consistently achieves better carbon reduction effects or relatively higher profits. 3) The marginal profits of companies with similar historical intensity baselines are almost the same. This gives an advantage to companies who implement green technologies earlier, as they can quickly gain returns from GT.

Low carbon dispatch method for hydrogen-containing integrated energy system considering seasonal carbon trading and energy sharing mechanism

The increase in the share of renewable energy sources in the integrated energy system (IES) has led to the bidirectional flow of electricity and carbon in the transmission and distribution network, which has increased dispatch complexity. To address these issues, this paper proposes an optimal scheduling method for IES considering the seasonal carbon trading mechanism and electricity-carbon quota sharing method. First, an energy hub model of the integrated electric-heat-carbon energy system was established, with the introduction of carbon flow. Then, a seasonal carbon trading mechanism that considers the characteristics of carbon emissions in each period of the system is proposed, and the ladder-type carbon price model and carbon quota allocation method are optimized. Moreover, to fully utilize the interaction between electricity and carbon to achieve low-carbon economic dispatch, a dual time-scale electricity-carbon quota sharing method is proposed. Finally, the effectiveness of the proposed method is verified by the case studies. The results show that the scheduling method considering seasonal carbon trading mechanism and electricity-carbon quota energy sharing can optimize the allocation of resources such as electricity and carbon quota among the systems, and reduce the cost of the system by 6.04 % and carbon emission by 4.27 %.

Assessing the impact of carbon quota allocation in enhancing supply chain members emission reduction and advertising efforts

Carbon quota allocation, a precise implementation approach within the cap-and-trade policy, exerts an enduring impact on the production and economic activities of supply chain members. Recognizing the dynamic fluctuations in product goodwill, this study formulates differential game models involving both the manufacturer and retailer within the supply chain. Subsequently, differences in carbon emission reduction efforts, advertising expenditures, product goodwill, and profitability among supply chain members within each contractual framework are comprehensively compared and analyzed. Numerical illustrations are then utilized to validate the theoretical findings and strengthen the subsequent key insights. First, the implementation of carbon quotas allocation, especially those grounded in the benchmarking-based contract, enhances carbon reduction and advertising efforts by supply chain members. Second, both grandfathering-based and benchmarking-based regulations improve the product goodwill, with the latter yielding more substantial improvements. Third, the escalation in unit emission permit price positively impacts the dedication and profitability of supply chain members, although variations in profit enhancements between the manufacturer and retailer hinge on the specific carbon quota allocation methods employed. Lastly, the grandfathering-based total carbon quotas exclusively benefit the manufacturer's profitability, whereas the per-unit carbon quotas under benchmarking-based contract fosters enhanced individual efforts and profitability for all supply chain members.

Harmonizing economies and ecologies: Towards an equitable provincial carbon quota allocation for China’s peak emissions

Rational provincial allocation of carbon quotas serves as the foundational premise for attaining China’s carbon peak. Yet, prevailing strategies often overlook the holistic integration of trade-induced carbon transfers and ecological carbon sequestration, resulting in equity and scientific robustness deficiencies. This study addresses these shortcomings by examining historical carbon sources and sinks across China’s provinces and proposing a novel provincial allocation scheme based on the ‘equal consumption-based cumulative per capita net emission’ principle. Our findings reveal significant disparities in the carbon quotas between provinces, ranging from ‒98 Mt in Shanghai to 1016 Mt in Sichuan, primarily influenced by factors such as population size, historical emissions, and carbon sinks. The proposed scheme, integrating considerations of carbon transfers and sinks, safeguards the interests of less developed provinces (e.g., Hebei and Inner Mongolia) and those with valuable ecosystems (e.g., Yunnan and Inner Mongolia). Furthermore, the impact of carbon transfers on provincial carbon allocation quotas is more pronounced than that of carbon sinks. For instance, the inclusion of carbon transfers has increased Inner Mongolia’s quotas by 238 Mt, compared to 125 Mt attributed to carbon sinks. Considering the disparities in emissions reduction pressure and capacity across different provinces, combining fair carbon quota allocation with a nationwide carbon market can achieve cost-effective emissions reduction while ensuring the attainment of carbon peak.

A Big Data-Driven Approach for Early Warning of Enterprise Emissions Alignment with Carbon Neutrality Targets: A Case Study of Guangxi Province

Achieving the target of carbon neutrality has been an important approach for China to mitigate global climate change. Enterprises are major carbon emitters, and a well-designed early warning system is needed to ensure that their emissions align with carbon neutrality goals. Therefore, this study utilized electricity big data to construct an early warning model for enterprise carbon emissions based on carbon quota allocation. Taking key carbon-emitting enterprises in Guangxi as a case study, we aim to provide insights to support China’s dual carbon goals. Firstly, we established the Carbon Quota Allocation System, enabling carbon quota allocation at the enterprise levels. Secondly, we developed the Enterprise Carbon Neutrality Index, facilitating dynamic warnings for carbon emissions among enterprises. The main conclusions are as follows: (1) In 2020, Guangdong received the highest carbon quota of 606 million tons, representing 5.72% of the national total, while Guangxi only received 2.63 billion tons. (2) Only 39.34% of enterprises in Guangxi are able to meet the carbon neutrality target, indicating significant emission reduction pressure faced by enterprises in the region. (3) Over 90% of enterprises in Guangxi receive Commendation and Encouragement warning levels, suggesting that enterprises in Guangxi are demonstrating a promising trend in emission reduction efforts.

A two-tier bidding model considering a multi-stage offer‑carbon joint incentive clearing mechanism for coupled electricity and carbon markets

To facilitate the coupling of electricity and carbon markets, a two-layer bidding model considering a multi-stage offer‑carbon joint incentive clearing mechanism is proposed. The upper layer models the bidding strategies of renewable energy units and thermal power generating units, and the lower layer is the market clearing layer. A multi-stage offer‑carbon joint incentive clearing mechanism is proposed. In the pre-clearing stage, the environmental benefit factor of the carbon market is introduced to adjust the bidding strategy of the units, the carbon emission intensity enters the market in the form of price, the environmental benefit of the generating units is fully considered, and the carbon quota allocation model of units is established; in the second stage, carbon trading cost is added based on the pre-clearing model to further optimize the unit output; in the third stage, the clearing model with the minimum cost of electricity energy is established for tracking the clearing price. Under this mechanism, the carbon trading cost is traded on the market and unit offers are combined with carbon element to participate in market trading. Three bidding models with different clearing mechanisms are set up, and the results of the arithmetic example show that the proposed model can realize the balance between the economic and low-carbon goals of market clearing, and can achieve the maximum carbon emission reduction based on no increase in the total cost of electric-carbon coupling. As the share of renewable energy increases, the clearing price will decrease. A reasonable offer from renewable energy sources can avoid their interests being jeopardized. Concurrently, increasing the initial carbon price can effectively guide the electricity market to develop in a cleaner direction.

Research on the allocation scheme of carbon emission allowances for China's provincial power grids

The power industry is the industry with the highest carbon emissions in China, and the rational allocation of carbon quotas for the power industry is the key to the rational allocation of carbon quotas in China, while the transfer of carbon emissions generated by inter-provincial power trading makes it difficult to calculate the carbon emission quotas for power. The article calculates the comprehensive power carbon quota for each province based on the principles of equity(PEQ) and the principles of efficiency(PEF). The results of the study prove the following points. (1) There are significant differences in the carbon emission factors calculated for electricity generation and consumption in each province. (2) The western provinces with abundant electricity resources deliver electricity to the eastern and southern provinces to ensure their economic development, so the western provinces with higher inflows of electricity carbon emissions bear the carbon emission pressure of the eastern and southern provinces. (3) The provincial electricity carbon quota calculated by the principle of comprehensiveness(PC) takes into account social equity and economic efficiency, and the calculation results are more reasonable. This study achieves balanced regional development by reasonably allocating provincial electricity carbon quotas.

Research on Carbon Allowance Allocation Mechanism in Oligocompetitive Industries under Carbon Trading

In response to global warming, countries have implemented measures to control greenhouse gas emissions. The government's choice of carbon quota allocation mechanism is crucial to the effectiveness of emission reduction and control. This paper presents a master-slave game model where the government leads and the oligopolistic competitors follow. The aim is to explore the conditions under which the government chooses the allocation mechanism, providing managerial insights for the government's allocation of quotas.

Research on China’s regional carbon quota allocation based on the entropy weight-TOPSIS method and CRITIC-VIKOR model

Research on China’s regional carbon quota allocation based on the entropy weight-TOPSIS method and CRITIC-VIKOR model

Study on China’s 2030 provincial carbon quota allocation scheme considering the positive and negative effects of historical emissions

The carbon quota allocation scheme serves as the fundamental backbone for ensuring the smooth and sustainable operation of the carbon market. Despite numerous prior studies, ongoing debates persist regarding the impact of historical emissions, both positive and negative, on carbon quota allocation. Utilizing the four indicators of historical emissions (both positive and negative), egalitarianism, payment capability, and emission efficiency, this paper employs the entropy method to develop 22 distinct carbon quota allocation plans tailored for China’s provincial regions in the year 2030. Subsequently, utilizing the shadow price method, the study calculates the emission reduction costs of each province under each allocation scheme, thereby evaluating the carbon quota plans from the perspective of emission reduction costs. Finally, a comparative analysis is conducted to assess the impact of both positive and negative historical emissions on the carbon quota allocation scheme, and the paper identifies the carbon quota allocation approach that minimizes the overall emission reduction cost for China. The findings suggest that: 1) allocating more allowances to provinces with higher historical emissions can effectively reduce emission reduction costs for each province; 2) the most cost-effective option for carbon quota allocation is a scheme that takes into account both egalitarian and historical emission criteria; 3) in order to further decrease the overall cost of emissions reduction, it is crucial to achieve comprehensive coverage of the carbon market and facilitate inter-provincial carbon quota trading.

Power Generation Mix Optimization under Auction Mechanism for Carbon Emission Rights

As the international community attaches importance to environmental and climate issues, carbon dioxide emissions in various countries have been subject to constraints and limits. The carbon trading market, as a market tool to reduce greenhouse gas emissions, has gone through a development process from a pilot carbon market to a national carbon market in China. At present, the industries included in the national carbon market are mainly the electric power industry, and the carbon emissions of the electric power industry account for about 40% of the national carbon emissions. According to the construction history of foreign carbon markets, China’s future carbon quota allocation will gradually transition from free allocation to auction allocation, and the auction mechanism will bring a heavy economic burden to the electric power industry, especially the thermal power generation industry. Therefore, this study takes Guangdong Province as an example to optimize the power generation mix with the objective of minimizing the total economic cost after the innovative introduction of the carbon quota auction mechanism, constructs an optimization model of the power generation mix based on the auction ratio by comprehensively applying the system dynamics model and the multi-objective linear programming model, systematically researches the power generation structure under different auction ratios with the time scale of months, and quantitatively evaluates the economic inputs needed to reduce the greenhouse gas emissions. The results of the study show that after comprehensively comparing the total economic cost, renewable energy development, and carbon emissions, it is the most scientific and reasonable to set the auction ratio of carbon allowances at 20%, which achieves the best level of economic and environmental benefits.

Optimal carbon quota allocation for a capital-constrained e-commerce supply chain under the carbon rights buyback policy

This paper examines the optimal choices of carbon quota allocation methods for members of a capital-constrained e-commerce supply chain that obtains financing through carbon rights buyback. Considering two carbon quota allocation methods, namely the grandfathering system and the benchmarking system, this paper constructs and solves a game model with two cycles in which an e-commerce platform dominates a manufacturer that produces ordinary products and low-carbon products in the two cycles, respectively, examines the impacts of the carbon emissions reduction coefficient, carbon emissions benchmark coefficient, carbon price, and carbon saving on e-commerce supply chain decisions, derives the optimal carbon quota allocation method for each supply chain member under different carbon savings, and finally conducts numerical studies to verify the analytical findings. The study shows that: (1) The grandfathering system is more suitable for manufacturers with low carbon savings, and the benchmarking system is more suitable for manufacturers with high carbon savings. (2) The supply chain system and members prefer different quota allocation methods under different conditions. The e-commerce platform prefers the benchmarking system when the carbon emissions benchmark coefficient is high; otherwise, it chooses the grandfathering system. The manufacturer and the e-commerce supply chain prefer the benchmarking system when the carbon saving is high; otherwise, they prefer the grandfathering system. (3) The grandfathering carbon quota allocation method can more effectively facilitate capital financing for capital-constrained manufacturers.

Optimization model of low-carbon technology adoption timing for coal power under decarbonization and flexibility demand: Empirical study in Beijing-Tianjin-Hebei region, China

Substituting renewable energy for coal power under the carbon neutrality goal is an inevitable path for power system transformation, while the high share of renewable energy leads to a rapid rise in system flexibility demand. Currently, coal-fired power is still one of the most economical and reliable large-scale flexible resources in China. Therefore, the issue of how to mitigate the conflict between cleanliness and flexibility for coal-fired power is urgent to be solved. Accordingly, this paper established an optimization framework for the retirement and technology adoption of coal-fired power units with high spatial-temporal resolution, and the regional carbon emission budget is estimated from a top-down perspective. Secondly, a dynamic carbon quota allocation method considering technological innovation and adoption is proposed. The carbon trading cost of the units is evaluated from a bottom-up perspective, to realize the interaction between the obligatory policy constraints of the top-level target and the flexible incentives of the market mechanism. Finally, the empirical analysis was conducted in the Beijing-Tianjin-Hebei region of China. The optimal solution achieved by proposed method results in a substantial 27% reduction in total costs while keeping the increase in carbon emissions below 3%. By analyzing the dynamic evolution path of coal and the scale of diffusion of multi-type technologies, the differences in the roles coal power assuming at various stages of decarbonization are discussed. The robustness of the model and the validity of the proposed method were verified by comparing the dynamic/static carbon quota allocation. Overall, this study provides an effective optimization model for investigating the low-carbon technology adoption timing for coal power in Beijing-Tianjin-Hebei region, and offers valuable insights for other coal-dominated emerging economies seeking for power system transformation roadmap in the forthcoming net-zero carbon age.

Research on Carbon Emission Accounting and Emission Reduction Route of Thermal Power Plants

The power industry is a major contributor to carbon dioxide (CO2) emission, which accounting for 40% of total domestic carbon emission. Based on the carbon emission accounting method, this paper conducts carbon emission accounting for a number of power generation enterprises, analyses and concludes that the carbon quota allocation is being tightened year by year, proposed countermeasures and emission reduction routes in terms of carbon asset management and carbon reduction technology research. According to the actual situation of a coal-fired power plant in Anhui province, different carbon reduction routes are developed, among which photovoltaic power generation project has the most impressive economic benefits, but carbon capture project has the largest carbon reduction benefits. Under the premise of similar initial investment between the two projects, the carbon reduction brought by the latter is 5 times that of the former. It is suggested to choose the “new energy power generation+carbon capture and utilization” coupling technical route, which can improve the flexible operation of thermal power units and the absorption rate of new energy, and achieve efficient decarbonization. It provides a sustainable development technical route with both economic and environmental benefits for the low-carbon process.

Green Technology Investment Strategies Under Cap-and-Trade Policy

This article aims to address methods for reducing carbon emissions by investigating the green technology investment behavior of enterprises under cap-and-trade regulation and governments’ cap-and-trade policy design mechanisms. Considering that investments are long-term, we developed a two-period green technology investment model for a manufacturing firm facing carbon-sensitive demand in a cap-and-trade regulated market. Our findings show that the firm's investment strategy depends on trade-offs between the gains from selling low-carbon products and the costs of investing in technology. Such trade-offs are affected by consumers’ carbon emissions sensitivity, the unit carbon emission trading price, and the firm's investment efficiency across two periods. The first-period optimal free allowance allocated to the manufacturer is unique, but the second-period optimal free proportion is not unique as it is decided by the unit carbon emission trading price. In addition, the firm's chosen investment strategy based on the optimal carbon policies can create a mutually beneficial situation for the manufacturer, consumers, and society, which shows that the government-designed carbon policies, including the first-period free emissions allowance and the second-period free proportion, are effective. Our study results can aid manufacturers in making wise, strategic, and operational decisions about green technology investment and provide guidance on carbon quota allocation policies that promote the development of low-carbon economies.

不同碳配额分配机制下供应链的减排决策及契约协调

不同碳配额分配机制下供应链的减排决策及契约协调

Grandfather-based or benchmark-based: Strategy choice for carbon quota allocation methods in the carbon neutrality era

Climate change and extreme weather caused by the greenhouse effect have attracted global attention. Governments and public sectors are beginning to recognize the importance of reducing carbon emissions and have reached a consensus on “carbon neutrality.” This study investigates the strategic choice of carbon quota allocation methods within a supply chain framework, involving a policy maker (government), a manufacturer, and a retailer. At the outset, the government selects either the grandfather-based allocation method (Method G) or the benchmark-based allocation method (Method B) to regulate the manufacturer's carbon emissions. Subsequently, the manufacturer determines the level of carbon emission reduction and wholesale pricing, and the retailer sets the order quantity based on the manufacturer's decision. Drawing on equilibrium outcomes, this research compares the optimal decisions of firms, carbon emissions, consumer surplus, overall social welfare, and supply chain sustainability under these two methods. The research highlights several major findings. First, regardless of which allocation method is adopted, a rise of the initial carbon emission in producing process will lead to an increase in the wholesale price, but a decrease in emission reduction level and the order quantity. Second, under method B, the manufacturer reduces more carbon emission. Third, from the social welfare perspective, the method B/G is a better choice for the government when the environmental damage coefficient is relatively low/high. Fourth, when carbon quota and the initial carbon emission meet some certain conditions, the method B can achieve environmental sustainability and economic sustainability.