Carbon Trading Research Articles

A dynamic multi-objective optimization model for inner-industry carbon responsibility allocation based on carbon tax and carbon offsets accounting

The setting of Intergovernmental Panel on Climate Change (IPCC) raises concerns on curbing the excessive carbon emissions, and European Union (EU) has been proactively attempting “green” initiatives striving to achieve carbon neutrality. The current Carbon Border Adjustment Mechanism (CBAM) only works on short-term carbon reduction without much “greenness” investment incentives so far, and few studies focus on the long-standing inner-industrial carbon reduction coordination. To address these issues, this paper creatively presents a dynamic multi-objective carbon responsibility allocation model (CRAM) for EU carbon market, allows the carbon trade with a taxation based on carbon offsets accounting, and considers the final targets of sustainable “greenness” investment incentives. To find the optimal results of the designed dynamic CRAM, an improved KT-NSGA-II algorithm is proposed to detect the Pareto frontiers of each successive periods. Data from EU Cement and Aluminium industries are then selected for empirical analysis to compare the proposed CRAM to conventional CBAM model. The findings demonstrate that the superiority of CRAM in carbon emissions reduction, economic benefits improvement and green invests encouragement. With the adjustment of the inner-industrial carbon allowance trade, total carbon emissions decreased by 28.03% and the “greenness” investment initiative increased by 39.24% in contrast to the CBAM. The sensitivity analysis of the model also provides suggestions on the settings of carbon quota and tax with different industrial production process, and proposes policy recommendations for CRAM implementation.

Strategic investments and portfolio management in interdependent low-carbon electricity and natural gas markets

Addressing global warming necessitates carbon emissions reduction and renewable energy integration within the energy sector. Gas-Fired Power Plants (GFPP) are appealing to investors due to their low emissions and operational flexibility, which are considered necessary characteristics within low-carbon power systems with increasing renewable energy uncertainty. Investing in GFPPs presents intricate challenges due to the increasingly interdependent electricity and natural gas markets, especially in the light of a low-carbon economy. This work addresses these challenges for a strategic agent by proposing a bi-level optimization framework. The upper-level model derives the optimal electricity portfolio management regarding new investments and strategic biddings, while in the lower-level model, the electricity and gas markets are cleared sequentially under a Carbon Emission Trading Scheme (CETS). Case studies on a Pennsylvania-New Jersey- Maryland (PJM) 5-bus power system and an IEEE 24-bus test system demonstrate the applicability and efficacy of the proposed model in capturing the impact of a transitional integrated market framework on GFPPs investments. Also, introducing stochasticity to the model provides a better insight into the contrasting effects of emission allowance trading and gas prices on investment and bidding strategies.

Relegitimising the voluntary carbon market: Visions of digital monitoring, reporting and verification

Relegitimising the voluntary carbon market: Visions of digital monitoring, reporting and verification

A Sustainable Model for Forecasting Carbon Emission Trading Prices

Carbon trading has garnered considerable attention as a pivotal policy instrument for advancing carbon peaking and carbon neutrality, which are essential components of sustainable development. The capacity to precisely anticipate the cost of carbon trading has significant implications for the optimal deployment of market mechanisms, the economic advancement of technological innovations in corporate emissions reduction, and the facilitation of international energy policy adjustments. To this end, this paper proposes a novel and sustainable trading price prediction tool that employs a four-step process: decomposition, reconstruction, prediction, and integration. This innovative approach first utilizes the Improved Complete Ensemble Empirical Mode Decomposition with Adaptive Noise (ICEEMDAN), then reconstructs the decomposition set using multi-scale entropy (MSE), and finally uses the Long Short-Term Memory neural network model (LSTM) enhanced by the Grey Wolf Optimizer (GWO) to predict the carbon emission trading price. The experimental results demonstrate that the tool achieves high accuracy for both the EU carbon price series and the carbon price series of China’s seven major carbon trading markets, with accuracy rates of 99.10% and 99.60% in Hubei and the EU carbon trading markets, respectively. This represents an improvement of approximately 3.1% over the ICEEMDAN-LSTM model and 0.91% over the ICEEMDAN-MSE-LSTM model, thereby contributing to more sustainable and efficient carbon trading practices.

An analysis of optimal equilibrium in the carbon trading market - From a tripartite evolutionary game perspective

As the climate crisis intensifies, achieving the global consensus of carbon peaking and carbon neutrality has become imperative. Carbon trading is an important financial measure to address the environmental crisis, and the realization of the dual‑carbon goals requires the cooperation and joint efforts of all parties involved in the carbon emissions trading market. This study constructs a dynamic evolutionary game model involving enterprises, government, and financial institutions while considering consumers' influence. By solving for equilibrium points and conducting numerical simulations, we explore optimal strategy choices for each stakeholder. Our findings reveal that the success of enterprise low-carbon transition is contingent upon market dynamics and requires active cooperation from government, financial institutions, and the public. Furthermore, factors such as financial market efficiency and internal governance capacity significantly impact enterprises' transformation decisions by influencing low-carbon transition costs. Public feedback indirectly affects enterprise decisions through its influence on financial institutions' provision of green services. Additionally, gradual reduction of carbon quotas by government entities facilitates progress toward low-carbon transformation objectives.

EXPERIENCE WITH GREENHOUSE GAS EMISSION ALLOWANCE ALLOCATION AND ANALYSIS OF LESSONS FOR VIET NAM

This study analyzes and synthesizes international experiences in allocating greenhouse gas emission quotas, drawing lessons for Viet Nam's developing carbon market. The research examines emission trading systems (ETS) and quota allocation methods from various countries and regions, including the European Union, Germany, Austria, the United Kingdom, Switzerland, the United States, Canada, Nigeria, Kenya, South Africa, China, Japan, and New Zealand. Key findings highlight the importance of diversifying allocation methods, combining free allocation, auctioning, and benchmarking approaches. The study emphasizes the need for flexibility in system design, adapting to specific economic and social conditions of each country. Lessons learned include prioritizing high-emission reduction potential sectors, setting reasonable emission caps based on actual data, ensuring transparency in information disclosure, and establishing effective monitoring and evaluation mechanisms. The research also stresses the importance of providing technical support to businesses, especially small and medium enterprises, in complying with ETS regulations. Additionally, the study addresses concerns such as preventing carbon leakage, assessing social impacts, and ensuring international compatibility of the system. These insights provide a valuable foundation for Viet Nam to develop an effective greenhouse gas ETS that aligns with national conditions and sustainable development goals.

The phenomenon of China’s carbon accounting policies and practices

Purpose This study aims to explore China’s carbon accounting policies and practices to enhance its carbon accounting and trading practices and achieve carbon neutrality. Design/methodology/approach This study adopts a phenomenological methodology to explore carbon accounting by setting the scope of the phenomenon, establishing research methods, conducting interviews with 30 participants from 14 emitting entities and four accounting firms and establishing methods for data analysis. Five themes were identified using a five-step coding method. Findings The results show no uniformity in the accounting treatment of carbon trading; however, common characteristics exist, and they have generally adopted simplified and conservative accounting methods under China’s emission trading scheme. Their common characteristics are that the granted allowances are not recognised as assets by most emitting entities, emissions allowance assets are measured using the historical cost method, most emitting entities only conduct accounting when there are actual cash flows or outflows with regard to carbon emissions allowance trading, and only a few emitting entities disclose carbon trading information in their financial statements or corporate social responsibility reports. Originality/value This study highlights accountants’ crucial role in carbon activities by guiding emitting entities’ low-carbon initiatives and culture and transforming managers’ mindsets. It also introduces the China Accounting Standards Committee-based accounting methods for allowances and obligations, aiding carbon disclosure quality and sustainability. These findings also inform the carbon accounting standards that may enhance corporate accountability and address climate change.

Potential environmental implications of sandbar afforestation: Insights from ecosystem restoration initiatives in a sandbar of Brahmaputra River Assam, India

Plantation in riverine sandbars offers an excellent opportunity for restoration of ecosystem with a vast potential for enhancing carbon stock. Afforestation on barren islands is challenging task; however, Padmashree Jadav Payeng has single-handedly transformed a sandbar of the river Brahmaputra into a forested landscape in India’s northeastern state of Assam. Such inspiring initiative needs more attention in terms of scientific assessment to quantify ecosystem value and services that can be enriched through such activities. This study uses remote sensing data viz., Landsat4–5TM and Sentinel 2 A data to provide a detailed information on spatio-temporal variability of land use land cover of study region from 1990 to 2021. It aims to conduct a scientific and systematic assessment of biophysical changes that have occurred in the sandbars, understand the status of afforestation, and evaluate the current levels of aboveground biomass (AGB), belowground biomass (BGB), and carbon stock in the selected sandbars. The spatial distribution of AGB, BGB and carbon stock is derived using linear regression model between SAR backscatter and field-based AGB. The results demonstrate that forest cover increased by 31.92 % and sandbar area is reduced by 26.87 % from 1990 to 2021. Spatially derived AGB ranges from 9 to 1295.89 Mg per ha, BGB from 2.35 to 290.50 Mg per ha and carbon stock from 6.18 to 763.34 Mg per ha. Ficus religiosa exhibits a high biomass, ranging from 564.7 Mg per ha to 994.7 Mg per ha, and a high carbon stock, ranging from 8 to 557.30 Mg per ha, attributed to its larger diameter at breast height (DBH). Moreover, phytosociological assessment was conducted for the studied forest, which reveal a total tree species richness of 79. The forest exhibits a total tree density of 395 individuals per hectare. Different biodiversity indices provide a comprehensive understanding of species composition; where results show a Shannon diversity index of 2.81, a Simpson's index of 0.08, a Menhinick's richness index of 2.7, and a Margalef's richness index of 5.26. The article provides detailed information on change in forest cover and present status of AGB, BGB and Carbon stock, providing evidence-based narratives on ecosystem restoration. The initiative by a single person has created a forested landscape and habitat for a large number of wild animals, contributing to better carbon stock and a healthier ecosystem. With regard to the current debate of carbon market, the study suggests the need of instrumentalization of carbon credits for such restoration activities to encourage increase in carbon stock. It also concludes that in-depth research should be taken up on long-term effectiveness of such plantation activities and the potential for scaling up these initiatives for ecosystem restoration in view of climate change mitigation and sustainable forest development.

Endowment effects, expectations, and trading behavior in carbon cap and trade

We explain agents' trading behaviors and market outcomes in the presence of endowment effects intensified by expectations-based loss aversion in carbon cap and trade. Building on Kőszegi and Rabin (2006)’s model with forward-looking reference points, we show how firms' concerns about high future compliance costs (through loss aversion and uncertainty) can cause a gap between Willingness-to-Pay and Willingness-to-Accept for allowances. This leads to limited allowance trading and deviation from the socially desirable paths. The problem can be exacerbated under a substantial proportion of free allocation, a fixed (or inflexible) cap as well as uncertain regulatory ambitions, particularly in emerging economies under a variety of uncertainty. Recognizing the regulator's role in dealing with firms' expectations (or concerns) and facilitating innovation investments, we discuss potential alternative systems (e.g., with auction and flexible supply) for decarbonization that incorporate flexibility in terms of innovation timing and realized costs.

Discussion On The Development Of China's Regional Carbon Market Under The Background Of Double Carbon

Accelerating China's carbon trading market is one of the important means to deal with climate change and achieve the dual carbon goal. Due to the huge differences in China's regional economic development and carbon resource endowment, the impact of the establishment of the national unified carbon trading market on regional economic development is unstable and uncertain. For local governments to make full use of this empty window period, this paper combs the recent development of the carbon market, and discusses the development prospect of China's regional carbon market under the background of carbon trading. The results show that: ①in the current development of the national carbon emission trading market, we can not achieve the carbon unification of the market and abandon the local carbon trading market; ②In the process of regional carbon trading, it can promote the low-carbon development of local economy; ③In the process of regional carbon trading, it can increase the share of clean energy and improve the efficiency of regional ecological and environmental protection. Then, some suggestions are put forward for the development of local carbon trading: ①appropriately expand the pilot scale of local carbon trading, go up and down, and realize the double cycle development of carbon market; ②Strengthen the training of professionals and create an innovative and entrepreneurial business environment; ③build a carbon platform with big data technology and improve the Regional Internet plus carbon enterprise database; ④Actively promote the development of PPP model, explore the carbon sink transaction of cooperation between the government and social capital, continuously improve the regional green and low-carbon development, and jointly promote the realization of the "double carbon goal".

RESEARCH ON THE INFLUENCE OF CARBON EMISSION RIGHT TRADING ON THE GREEN TECHNOLOGY INNOVATION OF ENTERPRISES

The paper uses China's carbon emission trading pilot as a kind of natural experiment and panel data from 2128 listed A-share manufacturing companies in Shanghai and Shenzhen from 2010 to 2021. It then uses difference-in-difference (DID) to look at how the carbon emission trading policy affects businesses' efforts to come up with new green technologies. The research shows that the carbon emission trading policy has significantly promoted the green technology innovation of enterprises, and the conclusion remains stable even after the parallel trend test, PSM-DID test, and placebo test. Furthermore, we discovered that rising carbon prices reinforce the positive role of carbon emission trading policies in promoting green technology innovation in enterprises.

Fuzzy credibility chance-constrained multi-objective optimization for multiple transactions of electricity–gas–carbon under uncertainty

This paper proposes a fuzzy credibility chance-constrained multi-objective optimization model to optimize market transactions in the electricity–gas–carbon sectors under uncertainty. The model aims to maximize the profit of an integrated energy service provider by incorporating a ladder-type carbon trading mechanism, which adjusts carbon prices based on emission levels, and detailed multi-energy flow constraints. To effectively manage uncertainties in electricity, gas, and carbon markets, we derive credibility distributions for uncertain variables and introduce fuzzy credibility chance constraints—tools that assess the likelihood of meeting multiple transactions under uncertainty. The proposed model hedges the risks associated with multiple uncertainties while maximizing the credibility of expected costs, effectively balancing risk and cost. Through simulation analysis on an IEEE 33-node power network and a 32-node heat network, the proposed model achieved a 9.8% reduction in total system cost and an 8.5% reduction in total carbon emissions. Additionally, the model effectively determined credibility levels under different risk preferences, demonstrating its robustness in enhancing electricity–gas–carbon trading and promoting a low-carbon economy. This research provides a novel planning method for formulating trading strategies in multi-energy markets, with significant real-world implications for energy management and environmental sustainability.

Questioning Sustainable Environmental Policies and Practices in Indonesia: Would Durkheim’s Structural Functionalism Theory Have a Relevance?

Indonesia, as a signatory to the UNFCCC and the Paris Agreement, is committed to reducing greenhouse gas (GHG) emissions. These commitments, outlined in Law Number 16 of 2016, include limiting global temperature rise, setting Nationally Determined Contributions (NDC) targets, and developing a long-term strategy for net zero emissions by 2050. To meet these obligations, the Indonesian government has introduced Carbon Economic Value (CEV) policies through Presidential Regulation Number 98 of 2021. These policies aim to reduce GHG emissions by implementing carbon pricing mechanisms such as carbon trading, levies, and performance-based payments. However, the implementation of CEV policies has faced various reactions, including criticism and resistance. Despite these challenges, it's imperative not to hinder the policy's implementation, given its potential to drive significant societal and lifestyle changes towards a greener future. This study analyzes Indonesia's progress in reducing GHG emissions through CEV policies. Using normative legal research and qualitative analysis, it explores the positive impacts of these policies, including their alignment with structural functionalism theory. The study highlights that the implementation of CEV policies as an effort to reduce greenhouse gas emissions in Indonesia through carbon trading mechanisms, carbon taxes, and funding partnerships with developed countries aligns with structural functionalism theory according to Emile Durkheim. This is evidenced by the existence of a clear system (legal and governance) in implementing CEV policies, including regulators (Government), implementers (SOEs, private sector, and society), supervisors (UNFCCC), and program donors (World Bank, IMF), where each entity cooperates in an organized manner in accordance with the provisions of the Paris Agreement 2015 and Presidential Regulation 98 of 2021 continuously according to their respective tasks. This policy also brings about functional social change by promoting a harmonious balance to shift dependence away from fossil fuels towards more environmentally friendly Renewable Energy sources.

Carbon market design and market sentiment

Concerns about systematic price distortions in the EU Emission Trading System (ETS) have risen in recent years. This paper shows how carbon-market design affects the impact of market sentiment, i.e. systematic deviations of price expectations from fundamentals by at least some market participants, on equilibrium prices. The Market Stability Reserve (MSR) of the EU ETS that adjusts supply based on past allowance banking undermines self-stabilization of the carbon market by discouraging rational intertemporal arbitrage. The MSR increases vulnerability of the EU ETS to market sentiments. Initially, the allowance price responds more to distorted expectations while the MSR (partially) prevents the distortion to spread across periods. Making the MSR more responsive to banking decisions increases the likelihood that distorted expectations turn out to be correct ex post. In contrast, a mechanism that adjust the cap based on the current allowance price does not face a trade off between stabilizing prices in the present and the future.

Market-incentivized environmental regulation, industrial agglomeration and the effects on carbon shadow price: Evidence from China's local pilot policies for carbon market construction

Market-incentivized environmental regulation, industrial agglomeration and the effects on carbon shadow price: Evidence from China's local pilot policies for carbon market construction

A review of policy levers to reduce meat production and consumption

It is increasingly apparent that we require a substantial reduction in animal production and consumption for the sake of the environment and public health. In this paper, we conducted a systematic review to explore the policy levers available for governments to reduce animal farming and the consumption of meat. The policy levers generated by the review are categorised by four main types of interventions: Financial measures, Command- and-control, Informational, and Behavioural. First, we explore four financial measures: taxes on meat is the most-studied intervention, and the least publicly accepted in polling, sometimes being implemented indirectly via measures such as carbon taxes or rescinding VAT exemptions; subsidies for animal product alternatives are considered as a more publicly acceptable alternative approach, and would reduce long-term demand for meat by making alternatives more competitive; agricultural carbon trading schemes are discussed, and may represent a politically feasible way to hold livestock producers accountable for negative externalities; and buyouts of animal farms can be an impactful way to compensate producers to leave the industry, but must be done with care to avoid unintended social and market consequences. Second, we explore two command-and-control measures: regulating animal production with standards such as animal welfare requirements and health and safety rights for agricultural workers is amongst the most well-supported policies, and is an impactful way to ensure minimum standards of production are met; however, restrictions on animal consumption, such as meat–free days in public catering, are less publicly accepted. Third, we discuss three informational measures: food product labels, such as animal welfare or environmental impact labels, fulfil consumers’ expectations to have this information, and although there is limited evidence that they impact consumer behaviour directly, such labels may nonetheless incentivise producers to competitively improve; likewise, national dietary guidelines appear to have little direct impact on food choices, but can impact other institutions such as schools and medical institutions; policies on information campaigns can help or hurt meat reduction efforts, with some jurisdictions prohibiting meat advertisements, while others spend millions on campaigns to promote meat consumption. Fourth, we explore a range of behavioural measures which could be implemented in public catering settings and/or incentivised in food service, including presentation and positioning of meat- and plant-based dishes, and altering the food options on offer – we find that adding more high-quality plant-based options to menus and presenting these options as the default wherever the format allows are highly impactful and tractable behavioural policies that could reduce meat consumption. Informational and behavioural measures can complement traditional fiscal and command-and-control measures to reduce animal production and consumption. We discuss the implications for researchers and policymakers.

Operation optimization and performance evaluation of photovoltaic-wind-hydrogen-based integrated energy system under carbon trading mechanism and uncertainty for urban communities

The integrated energy system (IES) can promote the accommodation of renewable energy, achieve efficient energy utilization, and reduce carbon emissions, which is a crucial direction of energy system transformation development. This study proposes an optimal design and scheduling operation framework of photovoltaic-wind-hydrogen-based IES coupled with multiple heterogeneous energy flows and energy storages for urban communities. The carbon trading mechanism and uncertainty of renewable energy output are taken into account, where the uncertainty can be tackled by fuzzy chance constrained programming (FCCP) method through a clear equivalent transformation to the fuzziness of forecast error. Then, a case study with the minimum sum of multiple costs over a day-ahead planning horizon is employed to validate the applicability of the proposed IES, in which various operation scenarios regarding system configuration and confidence levels with comprehensive performance evaluation are investigated and analyzed. The simulation results indicate that compared with the reference system, primary energy saving rate, total cost saving rate, and CO2 emission reduction rate of the proposed IES are 45.18%, 11.39% and 52.17%, respectively. Besides, as the confidence level increases, the overall performance corresponding to evaluation indicators shows a downward tendency. Moreover, a reasonable carbon price and lower natural gas price will improve the overall benefits. The proposed model can be helpful for decision-makers to trade off the pros and cons between system performance and risk and provide a reference for similar studies and applications.

The asymmetric correlation and causality between the European Union carbon market and fossil energy markets caused by COVID-19

The carbon and fossil energy markets have been significantly affected by the COVID-19 pandemic. This article examines the nonlinear correlation and the spillover effect between the global fossil energy markets and the European Union carbon market prior to and following COVID-19. The nonlinear correlation is captured by the localized Gaussian correlation approach, and the spillover effect is evaluated using a quantile-based Granger causality analysis method. Empirical evidence demonstrates that COVID-19 strengthens the correlation between the carbon and oil markets. Conversely, the correlation between the carbon and coal markets is weakened by COVID-19. Furthermore, COVID-19 only resulted in the contagion between the carbon and Texas gas markets. Finally, the spillover effect between the European Union carbon market and fossil energy markets changes from unidirectional to bidirectional. This article provides inspiration for investors to adjust their portfolios to reduce investment risks and meaningful information for policymakers to maintain market stability.

Does the pilot trading of carbon emission rights cause domestic or international pollution transfer?

The implementation of a carbon emission trading pilot policy has a positive impact on sustainable development but may lead to pollution transfer by enterprises, thereby affecting sustainability. In this study, based on the panel data of Chinese-listed companies from 2007 to 2017, the carbon emission trading pilot policy was treated as a quasi-natural experiment and the Difference-in-Differences model was used to analyze whether these companies engaged in pollution transfer under the policy shock. The results indicated: first, carbon emission trading pilots lead to pollution transfer within mainland China but not across international borders; second, the power and aviation industries exhibited significant pollution transfer phenomena, and the policy also encouraged pollution transfer by non-green transformation enterprises; third, regional heterogeneity further showed that the central region showed no signs of pollution transfer and instead experienced pollution inflow, while the eastern region exhibited significant pollution transfer. Therefore, in designing policy, we should fully consider the phenomenon of enterprise pollution transfer, promote technological innovation, and ensure that carbon emission trading policies achieve emission reduction goals and promote sustainable development.

Optimal scheduling of a multi-energy complementary system simultaneously considering the trading of carbon emission and green certificate

This paper uses a multi-energy complementary system composed of thermal, wind, photovoltaic power generation, and electric energy storage units to participate in four market mechanisms and construct the optimal scheduling model of these trading mechanisms. These four mechanisms are carbon emission trading, green certificate trading, these two trading that are not joint, and joint. Under the latter two mechanisms, the excess carbon emissions of the system can be reduced to 9258t, and the utilization rate of renewable energy can reach 100 %. However, the operating costs under the fourth mechanism are 9695.80 $ lower than the third one because 5947 pieces of green certificates are converted into carbon emission rights. When the carbon price rises, the cost of the fourth mechanism increases slower than that of the third mechanism. The conversion volume of green certificates increases from 5947 to 10947, and the cost difference between the two increases to 67558.33 $. When green certificate prices rise, the cost under the fourth trading mechanism decreases faster. As that cost steadily declines, the carbon emission rights are converted into 907 green certificates, and the cost difference between this and the third mechanism increases to 4695.52 $.