Carbon Trading Pilots Research Articles

The spillover effects of China’s regional environmental markets to local listed firms: a risk Granger causality approach

Using the quantile GARCH model estimators to gauge the bidirectional risk magnitude and the Granger causality test in risk distributions to detect the existence of risk spillovers, this paper explores the extreme risk spillovers of China's regional carbon markets to local listed firm's stock returns. From the perspectives of macro region level and micro firm level, the findings are outlined as follows. First, among the top three active carbon trading pilots (Hubei, Guangdong, and Shenzhen), Hubei pilot exhibits significant "low risk and high profit" features. Second, the predominant risk spillover effects to local listed firms are heterogeneous across pilots. Specifically, Hubei pilot is dominated by "up-to-down" effect, and Guangdong pilot is dominated by "down-to-down" effect, while Shenzhen pilot has no predominant effect. The heterogeneous risk spillover performance may be caused by the regional divergence in economic development, industry structure, and cap setting concerning each pilot. Third, the risk transmission performance from carbon allowance price to local listed firm's stock returns depends on the firm's belonging sector. That is, environment-related firms, either environment-friendly firms or pollution-intensive firms, are more susceptible to carbon markets' risks compared with environment-unrelated firms. This paper supplies novel information on the risk transmission from carbon markets to local economic entities, which proves valuable not only for firms to improve risk aversion ability but also for policy-makers to perfect carbon markets' mechanism.

Research on Carbon Emission Reduction Effect of China's Carbon Trading Pilot

Carbon emissions trading is one of the important ways to reduce carbon emissions by giving CO2 emission rights a commodity attribute that allows them to trade on the market and to reduce greenhouse gas emissions through the market mechanisms. Based on the inter-provincial panel data from 1997 to 2016, this paper constructs a basic theoretical analysis framework to analyze the carbon emission reduction effects of carbon trading policies, adopts PSM-DID to study the carbon emission reduction effects of carbon trading pilots. This study finds that: (1) The implementation of the carbon trading pilot can promote carbon emission reduction, but the pilot provinces and municipalities have different economic development levels, industrial structure and supporting measures adopted after the implementation of the carbon trading pilot policy, resulting in differences in carbon emission reduction effects between pilot provinces. (2) For the seller of carbon emission rights, carbon emission reduction is achieved through three effects of "market return-inducing", "technical innovation incentive" and "government support"; for the buyer, carbon emission reduction is achieved through three effects of "enterprise cost pressure", "process innovation motivation" and "market guiding". (4) The results of traditional PSM-DID further prove that the carbon trading pilot can significantly reduce CO2 emissions.

Evaluation on the emission reduction benefits of China’s Carbon Trading Pilot

Evaluation on the emission reduction effect of the carbon trading pilot is very important for China’s energy conservation and emission reduction. This paper uses the generalized linear model to evaluate the emission reduction effects of China’s carbon trading pilot. The results show that existing Carbon Trading Pilot slow down the relative increase of carbon emissions in the pilot areas, and their emission reduction effect is relatively obvious before and after the establishment of the carbon trading pilots from 2010 to 2012. However, as time goes by, the emission reduction effects in the adjacent period become weak. Therefore, it is necessary to implement the national carbon market as soon as possible to promote the energy saving and emission reduction of national province scale.

THE GAME OF INTERESTS IN CHINA'S UNIFIED CARBON MARKET: A PERSPECTIVE OF SUSTAINABILITY

China is currently promoting the construction of a nationwide unified carbon trading market. Theoretically, a unified carbon trading market can play a role in improving the efficiency of carbon trading. However, in the process of transformation from decentralized and pilot carbon trading platforms to a unified national one, the individual differentiation of market participant s increases and risks are different. It is the core issue to ensure more sustainable and healthier development for the unified carbon market to make fair and reasonable income distribution for market participants with differences.The paper uses the Shapley value method to allocate the cooperative benefits in the carbon trade market and then introduces the diversified risk factors borne by participants in the carbon trade market to revise the results of income distributing. The results show that the allocation mechanism considering multiple risk factors is more fair and reasonable. The research results can provide reference for policy making about how to improve the enthusiasm of market participants in the national unified carbon market and promote the sustainable development of the carbon trading market.

Study on serviceability and efficiency of seven pilot carbon trading exchanges in China

Carbon trading has become a major innovation for many countries to cope with climate change, where in China the 7 pilot markets have been running for over 6 years with different performances shown. Being the actual venue where buyers and sellers trade carbon permits, how well and efficient a carbon trading exchange is designed directly affects whether the market can fulfill its environmental purpose. This paper selects 13 sub-indicators from three dimensions of main settings, risk prevention & control, and regional cooperation to evaluate the serviceability of the 7 exchanges in pilot carbon markets in China. Using which as input indicator and market operational effect as output indicator that represented by 5 sub-indicators including percentage of valid trading days, dispersion of trading volume etc., the study attempts to analyze how the serviceability of exchanges affect market operation. By applying the SUP-CCR-DEA (Super-efficiency CCR Data Envelope Analyze) model on 7 exchanges' trading data from 2013 to 2017, the study finds that the serviceability of the exchanges varies significantly, with Shanghai being the best and Shenzhen ranks the second. Obvious stratification is detected but with small changes during the four years observed, differences in main settings and transaction management system being the primary cause. It is found that the serviceability has a direct and significant impact on the market performance for all 6 exchanges except for Tianjin, and for those top-ranked exchanges, strong enforcement system and legally binding agreements contribute to their high service efficiency.

Volatility modeling and the asymmetric effect for China’s carbon trading pilot market

China’s carbon trading pilot programs are proceeding gradually, and play a positive role in promoting the development of a domestic carbon market. Because of the late start, deficiencies still exist in the understanding, modeling, and exploration of China’s carbon trading pilot market. Our goal is to model the carbon price dynamics and explore the regularities of seven city-based carbon trading pilots. Based on the daily carbon price time series, we analyzed the behavior of the carbon log-returns from 2013 to 2018, modeled them with the ARMA–EGARCH–SGED process, assessed the impact of news on volatility, and carried out the backtesting Value-at-Risk (VaR) analysis. Statistical analysis shows that the log-returns are skewed kurtosis, fat tail, non-normal distribution, and have significantly volatility clustering. The estimated models perform well and capture the asymmetric impact of news on volatility. Positive news increases bigger volatility than a negative one, except for Hubei and Chongqing. The Shenzhen pilot shows the best performance in resisting markets’ risk, while lower-capability in that are found in Hubei and Tianjin. Moreover, the estimated models for seven pilots have adequate capital to cope with large unexpected losses and VaR estimates give a good prediction of market risk at 99%, 97.5%, and 95% confidence level.

Assessing the maturity of China's seven carbon trading pilots

Indicators based on the developed version of the Capability Maturity Model were set up to access the maturity degree of China's seven pilot carbon markets from 2013 to 2017. Results show that the maturity degree of Shenzhen and Beijing pilot carbon markets ranks first; while those of Guangdong, Hubei, and Shanghai rank second. Tianjin and Chongqing rank lowest. Most of pilot markets failed to perform well on price efficiency except Shenzhen. There is significant disparity in the scores that the pilot carbon markets got, with a range from 9 to 73. The drivers to maintain market maturity is different among the pilot markets, either with a good performance on market structure, scale, or efficiency could lead to a certain score. Much could be done to increase the maturity level of the carbon market. Further downscaling the firm size, raising the legislation level, and increasing the participation of the third party entities may help the carbon market to grow healthier.

Carbon emission quota allocating on coal and electric power enterprises under carbon trading pilot in China: Mathematical formulation and solution technique

Abstract This paper considers the fair and efficient principles, a fairness deviation index model was established based on measurement of carbon emissions in various links inside the coal power supply chain enterprise in consideration. Meanwhile, a carbon quota allocation model was built by taking minimum fairness deviation index as the objective and department production levels inside various links as constraint conditions under the carbon trading pilot program. Furthermore, from the angle of inter-link coordination of the coal power supply chain enterprise, carbon quotas in different links were coordinated with total emission quantity and tradability of the enterprise's carbon quota taken as objectives. X coal power supply chain enterprise taken as an example, its carbon emission reduction responsibilities in raw coal mining, coal washery and various power generation links during 2018–2020 were internally decomposed under constraints of total carbon emission and emission reduction objective. Study conclusions provide a theoretical support and corresponding policy basis for internal and external coordination between coal and electric power enterprises in carbon emission reduction under the carbon quota constraint.

China’s Carbon Market Development and Carbon Market Connection: A Literature Review

As a responsible world power, China has established quantitative carbon emission reduction targets and started to establish carbon trading pilots in 2013. Successfully connection and a certain size of the carbon market can further enhance the liquidity of carbon allowances and, to a certain extent, contribute to the enthusiasm of enterprises to participate. This paper gives an overview of the past operational development of China’s eight carbon market pilots, the current problems in the national carbon market, the elements that need to be improved during the establishment process, and the feasibility of future connection between China’s carbon market. In addition, the international carbon market was summarized and analyzed. We found that, compared with the already mature carbon market in the world, there is still a big gap between China and these countries’ carbon market in various respects, such as the carbon price formation mechanism, the carbon quota allocation, carbon emission coverage sources, and legal and policy systems. Thus, China should manifest the pricing mechanism, unify the allocation of carbon quotas, cover the sources of emissions, introduce clear laws and regulations in the construction of the carbon market, all these will ensure the smooth operation of the national carbon market.

The efficiency of carbon trading market in China: evidence from variance ratio tests.

On December 19, 2017, China's National Development and Reform Commission (NDRC) announced the official launch of the much-anticipated national emissions trading system (ETS), which is a critical period for the transition from the eight carbon emission trading pilot projects to the national market at this stage. Comprehensively evaluating the efficiency of China's eight carbon trading pilots is vital for strengthening the construction of its national ETS. This paper investigates the weak-form efficiency of eight carbon trading markets in China. We use a series of variance ratio tests to identify the efficiency from the market set up to the May 4, 2018, of all markets. The results indicate that the majority of the carbon trading markets are inefficient and only Beijing, Hubei, and Fujian markets are efficient. The China's carbon trading market is gradually maturing and implemented. In addition, we analyze the factors have impact on the market efficiency. It shows that the liquidity, volume, allocation allowance, and transparency in information are significant factors; meanwhile, the regional policy and cross cooperation also are important factors. Finally, this paper puts forward several policy recommendations on how to strengthen the effectiveness of China carbon trading markets based on the empirical results.

Can a carbon trading system promote the transformation of a low-carbon economy under the framework of the porter hypothesis? —Empirical analysis based on the PSM-DID method

Global warming is one of the issues of great concern in the world. The large-scale use of fossil fuels has led to the continuous increase in carbon emissions, resulting in global energy shortages and environmental pollution. Reasonable and strict environmental regulation promotes technological innovation by enterprises to achieve a win-win situation between the economy and environment, which is the core idea of the Porter hypothesis. The choice of China, as the world's largest energy consumer and carbon emitter, is not only related to the country's own mode of economic growth but also determines the development of the world's low-carbon economy. We used the panel data from 2000 to 2016 of 30 provincial-level administrative regions in China and adopted the Propensity Score Matching–Difference in Differences method to test the impact of China's carbon trading pilot system on the transformation of a low-carbon economy. The empirical results show that under the constraints of the established resources and environment, there is a positive relationship to some extent between China's carbon trading system and low-carbon economic transformation. This relationship can realize the win-win situation of environmental and economic benefits as advocated by the Porter hypothesis and further verify the applicability of the Porter hypothesis.

Recognition and analysis of potential risks in China's carbon emission trading markets

China formally launched the carbon trading pilots in seven provinces and cities in 2013. Based on the operating situations of international carbon emission trading markets and that in China, this study compares and analyzes the potential risks in the European Union Emission Trading Scheme, California's cap-and-trade system, and the seven regional carbon trading pilots in China. It mainly recognizes market operation risks, risks of uncertain policy expectation, and risks of uncertain mechanism designs existing in China's carbon trading pilots. The carbon market risks are not good for the formation of rational price signals, making it difficult to guide enterprises on how to make low-carbon technology investments. Such risks also affect the effectiveness and functions of carbon markets, which can lead to the non-achievement of national emission reduction goals. China has launched the national carbon emission trading scheme on December 19, 2017. While building the national carbon trading scheme, it is important to fully refer to the experiences of international carbon markets and China's carbon trading pilots apart from strengthening the recognition, control, and supervision of carbon market risks. Doing so can promote the healthy development of China's national carbon trading scheme.

A New Grey Relational Analysis Model Based on the Characteristic of Inscribed Core (IC-GRA) and Its Application on Seven-Pilot Carbon Trading Markets of China.

In recent years, the study of the factors affecting the carbon trading price plays an important role in promoting the carbon trading markets and the sustainable development of green economy. However, due to the short establishment time of China’s carbon trading market, the carbon trading price data of the pilot markets were not complete and have the typical characteristics of poor information. The traditional grey correlation model cannot effectively identify the volatility and the grey correlation coefficient of trading data. In this paper, an inscribed cored grey relational analysis model (IC-GRA) is constructed by extracting the values of the triangle inscribed center of the time series sample. Through numerical examples and empirical analysis, it is verified that IC-GRA not only satisfies the four axioms of traditional grey correlation but also avoids the influence of outliers of time series fluctuation and improves the discriminability of the grey correlation coefficient. The empirical results of the IC-GRA model in China’s seven pilot carbon trading markets show that: 1. among international carbon trade factor, the biggest influence factor carbon trade price is different in pilot markets. The price of natural gas has a greater correlation with the carbon price of carbon trading markets in Shenzhen, Guangzhou, and Chongqing. The futures price of Certified Emission Reduction (CER) has a strong correlation with the carbon price of Shanghai and Beijing carbon trading markets; the price of Hubei carbon trading market is the largest related to crude oil future price in the New York Mercantile Exchange ( NYMEX). 2. Air Quality Index (AQI) is most relevant to the market carbon price of carbon trading, followed by the trading turnover and trading volume of the carbon trading market. Therefore, studying the carbon trading price of the carbon trading market plays a positive role in improving the sustainable development in those areas.

Present Situation and Prospect of China's Carbon Exchange Market and the Strategy of Carbon Exchange in Key Industries

With the development of economy and society, the world has entered a low-carbon era. As the largest developing country, China holds the largest gas emission right, and has a huge market potential for carbon emissions. This paper reviews the situation of China’s carbon emissions trading market, and describes in detail the progress of carbon trading pilots. Then, it summarizes the carbon trading rules of seven pilots and analyses the problems in China’s carbon emissions trading market. Finally. it gives suggestions for next work. Meanwhile, combined with relevant national policies, it analyses key industries with carbon emissions, the challenges faced by them in the carbon trading market, and also offers strategies for key industries.

Pros and Cons of Replacing Grandfathering by Auctioning for Heterogeneous Enterprises in China’s Carbon Trading

ABSTRACT To provide some experience and lessons for China’s emission trading scheme (ETS), this article assess the performance of carbon trading pilots from the perspectives of abatement effectiveness and economic efficiency. By developing an emission decision-making model and an asymmetric permits auction model, it is found that replacing grandfathering by auctioning may avoid the occurrence of emitters’ adverse selection and improve the ETS’s effectiveness. However, for heterogeneous enterprises, auctioning may not achieve social optimality, which renders the ETS inefficient. To correct the inefficiency, two macro-regulation tools are discussed. As a result, the auction with macro-regulations is an alternative efficient market-based instrument for China ETS.

Impact of Carbon Prices on Corporate Value: The Case of China’s Thermal Listed Enterprises

The emission trading scheme (ETS) has become a significant tool to solve the climate change problem. China has built domestic carbon trading pilots to control energy consumption and reduce emissions. This paper explores the linkage between the carbon market and covered corporate value in China. To address the relationship, this paper estimates the impact that the carbon prices of different pilots in China have on the value of thermal listed enterprises and the extent of this impact. By using weekly data from July 2014 to June 2017, we analyze the overall effect and perform a comparative study of influences of the three trading years. Moreover, we test if the effect of carbon trading pilots on electricity corporate value is market-specific. The results demonstrate that carbon prices have a significantly negative impact on stock value when looking at the full sample and the effects vary between markets.

Analysis and forecasting of the carbon price using multi—resolution singular value decomposition and extreme learning machine optimized by adaptive whale optimization algorithm

Precise prediction of carbon prices by means of single forecasting models may be difficult due to the inherent non-stationary and nonlinearity characteristics of the carbon price. This paper i proposes an innovative hybrid model for predicting the carbon price. The prediction was made through the extreme learning machine optimized by the adaptive whale optimization algorithm based on the multi-resolution singular value decomposition. The multi-resolution singular value decomposition was used to eliminate the high frequency components of the previous carbon price data. Afterwards, the carbon price was successfully decomposed into two time series—the approximation series and the detailed series. The partial auto-correlation function was employed in the approximation series for determining the input variables of the extreme learning machine. The adaptive whale optimization algorithm was utilized to optimize both the input weight matrix and the bias matrix to improve the robustness and accuracy of extreme learning machines. The empirical simulation based on four diverse types of carbon prices under carbon trading pilot programs in China found that the proposed model outperformed the other benchmark methods. Four different matured carbon future prices under the European Union national emissions trading scheme (EU ETS) were also selected for forecasting. The results showed that the proposed model performed fairly well in forecasting the EU carbon price.

The influencing factors of China carbon price: a study based on carbon trading market in hubei province

For the carbon market, good trading mechanism is the basis for the healthy development of the carbon trading market. In order to explore the core problem of carbon price formation, our research explores the influencing factors of the price of carbon trading market. After the preliminary statistical analysis, our study found that Hubei Province is in the leading position among seven pilots in the carbon trading volume and the transaction, so our study of carbon price takes Hubei Province as sample of the empirical research. Multi-time series model and ARCH model analysis method are used in the research, we use the data of Hubei carbon trading pilot from June 2014 to December 2016 to carry out empirical research, the results found that industrial income, energy price, government intervention and the number of participating corporation have significant effect on the carbon price, which provides a meaningful reference for the other pilots in-depth study, as well as the construction of a national carbon trading market.

Assessing five pilot carbon trading programs in China from a perspective of efficiency analysis

In order to overcome the challenge of growing carbon emissions in China, the pilot carbon emissions trading systems (ETSs) serve as precursors of the national carbon ETS. Five province-level pilot ETSs in Beijing, Tianjin, Shanghai, Guangdong and Hubei are assessed from the view of carbon emission efficiency analysis in this study. Firstly, both the environmental production technology and the Malmquist index are adopted to evaluate the carbon emission efficiency of 28 provinces in China. Then, the regression significance analysis of carbon emission efficiency and the operational information evaluation for pilot ETSs are combined to develop an integrated approach for assessing five considered pilot ETSs. The Efficiency analysis of carbon emissions indicate that the effect of ETS in Beijing is significant, the effect of ETS in Tianjin is weak significant, and those of the other three pilot ETSs are not significant. Based on the operational information for pilot ETSs, the evaluating results of pilot ETSs in Beijing and Hubei are better than those of other pilot ETSs. This study highlights two main findings. First, the pilot ETS in Beijing has better performance than the other considered pilot ETSs, and its operational experience should be promoted throughout the country to improve the construction of national carbon ETS. Second, the successful cooperation between the ETSs in Beijing and Tianjin implies that the regional cooperation among neighbouring ETSs should be encouraged and further implemented to enhance the overall performance of the regional ETSs.

Analysis of the transmission characteristics of China's carbon market transaction price volatility from the perspective of a complex network.

Research on the price fluctuation transmission of the carbon trading pilot market is of great significance for the establishment of China's unified carbon market and its development in the future. In this paper, the carbon market transaction prices of Beijing, Shanghai, Tianjin, Shenzhen, and Guangdong were selected from December 29, 2013 to March 26, 2016, as sample data. Based on the view of the complex network theory, we construct a price fluctuation transmission network model of five pilot carbon markets in China, with the purposes of analyzing the topological features of this network, including point intensity, weighted clustering coefficient, betweenness centrality, and community structure, and elucidating the characteristics and transmission mechanism of price fluctuation in China's five pilot cities. The results of point intensity and weighted clustering coefficient show that the carbon prices in the five markets remained unchanged and transmitted smoothly in general, and price fragmentation is serious; however, at some point, the price fluctuates with mass phenomena. The result of betweenness centrality reflects that a small number of price fluctuations can control the whole market carbon price transmission and price fluctuation evolves in an alternate manner. The study provides direction for the scientific management of the carbon price. Policy makers should take a positive role in promoting market activity, preventing the risks that may arise from mass trade and scientifically forecasting the volatility of trading prices, which will provide experience for the establishment of a unified carbon market in China.