Emission Allowance Trading Research Articles

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.

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.

Emissions Trading System in Ukraine

The article highlights the conceptual foundations for the introduction of an emissions trading system in Ukraine from a practical perspective. It is found that after signing the EU-Ukraine Association Agreement in June 2014, Ukraine pledged to implement a number of EU environmental directives, including Directive 2003/87/EU establishing a system for trading in greenhouse gas emission allowances. It is established that in order to improve the level of environmental safety in Ukraine and reduce the impact and consequences of climate change, the Government of Ukraine approved the Strategy for Environmental Safety and Climate Change Adaptation until 2030 in 2021. It is revealed that since the beginning of 2022, Ukraine has fulfilled its obligations under international treaties, and it is found that most companies comply with the requirements of Ukrainian legislation and support the country's decision to introduce an emission allowances trading system in Ukraine. The Verkhovna Rada of Ukraine adopted the Law of Ukraine “On the Principles of Monitoring, Reporting, and Verification of Greenhouse Gas Emissions”, according to which, starting from January 1, 2021, Ukraine will monitor, report and verify greenhouse gas emissions at the level of individual facilities, which enables Ukraine to ensure the trading of greenhouse gas emission allowances. It is established that Ukraine’s domestic and foreign policy prioritize the prevention of climate change through a substantial reduction in greenhouse gas emissions, particularly in wartime. Starting in 2025, Ukraine will introduce a greenhouse gas emissions trading system as part of its efforts to reduce emissions and achieve carbon neutrality. We find that clear rules must be established to ensure effective operation, supervision, and control of the emissions trading system in Ukraine. This includes identifying specific bodies responsible for regulating, implementing, and monitoring the system’s proper implementation in Ukraine, while also defining and delegating their respective roles and rights in regulating, implementing, and controlling the emissions trading system.

A novel deep learning based forecasting model for carbon emissions trading: A comparative analysis of regional markets

This paper proposes a deep learning-based forecasting system for carbon emissions trading in regional markets. The system utilizes a hybrid convolutional neural network (CNN) deep learning algorithm to predict future carbon emission levels and facilitate the trading of carbon emission allowances. The system is compared to traditional methods of forecasting in order to assess the accuracy and performance of the system. In order to enhance the CNN performance, a new optimization algorithm based on bacteria foraging algorithm (BFA) is proposed which uses a modification to make a global search. By leveraging digital twins in the markets, a comparison is conducted using data from three regional carbon markets: the European Union Emissions Trading System, the Regional Greenhouse Gas Initiative, and the China Carbon Market. Results show that the proposed BFA-CNN based deep learning-based system outperforms traditional forecasting methods in terms of accuracy and provides more reliable estimates of future carbon emissions. The proposed system is a novel approach to carbon emissions trading and has the potential to improve the efficiency of regional carbon markets.

Research on Day-Ahead Optimal Scheduling Considering Carbon Emission Allowance and Carbon Trading

In the context of the marketization of carbon trading in the power system, it is of great theoretical and practical significance to study a scientific and effective carbon emission quota allocation strategy. To solve this problem, under the current situation of large-scale access to new energy, considering the limitations of the carbon emissions from different emission subjects plus the construction of a carbon trading model among the emission subjects, a day-ahead optimal scheduling method that takes carbon emission quotas and carbon trading into account is proposed. Firstly, carbon transaction cost models of thermal power and wind power are constructed, respectively, and a carbon emission quota allocation strategy based on the entropy method is proposed to redistribute the weights of baseline emission factors for the regional power grid. Then, considering the additional carbon emissions of conventional thermal power units caused by wind power access, the carbon trading costs of different types of generation units are calculated on the basis of carbon trading price prediction. Thereafter, a day-ahead optimal scheduling model considering carbon emissions trading is constructed with the objective of minimizing the total cost of the system in the scheduling period. The model is solved as an MINLP problem based on MATLAB 2016a software utilizing CPLEX 12.4. Simulation results verify the correctness and effectiveness of the proposed method.

Research on Liquidity Measurement and Influencing Factors of China Carbon Emission Allocation Trading Market

Considering multi-dimensional concepts of liquidity, we introduces two classical liquidity measures to quantify the liquidity of China carbon emission allowance(CCEA) trading markets, and analyze their trading activities. Then monthly unbalanced panel was constructed based on daily trading data to further study on the influencing factors of CCEA market. We find that: 1) No matter what method we take, the Hubei pilot is the most liquid in the context of overall running periods, and the national carbon market and Guangdong pilot are also well performed compared to the other markets. 2)The foundation of national generalized market could bring about noticeable changes on the liquidity of carbon market, and Guangdong market which is one of the 8 carbon market pilots become more developed and liquid, while no significant variation in the rest of 7 pilots. 3) The emission control enterprises of each pilot have no inborn incentive to trade proactively, therefore transactions are concentrated on the performance cycle. 4)Regression results show that the price at the end of each month, trading volumes aggregated in each month, trading frequency of each month are all positively correlated with the liquidity, and return volatility of each month, carbon market fragmentation are negatively related to the liquidity. Finally we put forward some suggestion and policy recommendation rested on the above qualitative and quantitative analysis.

Connectedness among El Niño-Southern Oscillation, carbon emission allowance, crude oil and renewable energy stock markets: Time- and frequency-domain evidence based on TVP-VAR model

Understanding the interactions among climate change, carbon emission allowance trading, crude oil and renewable energy stock markets, especially the role of climate change in this system is of great significance for policy makers, energy producers/consumers and relevant investors. The present paper aims to quantify the time-varying connectedness effects among the four factors by using the TVP-VAR based extensions of both time- and frequency-domain connectedness index measurements proposed by Antonakakis et al. (2020) and Ellington and Barunik (2021) [8,48]. The empirical results suggest that, firstly, the average total connectedness among climate change, carbon emission allowance trading, crude oil and renewable energy stock markets is not so strong for the heterogenous fundamentals underlying them. Nevertheless, the time-varying total connectedness fluctuates fiercely through May 2005 to September 2021, varying from about 8% to 30% and rocket to very high levels during the global subprime mortgage crisis and the COVID-19 pandemic. Furthermore, the total connectedness mainly centers on the short-term frequency, i.e., 1–3 months. Secondly, climate change is generally the leading information contributor among the four factors, although not particularly strong, and its leading role also performs mainly on the short-term frequency (1–3 months). Thirdly, renewable energy stock market and crude oil market show tight interactions between them and they are the two major bridges of information exchanges across various time frequencies (horizons) in this system. Finally, we confirm the evidence that the primary net connectedness contributor and receiver switch frequently across different time frequencies, implying that it is extremely essential for policy makers, energy producers/consumers and investors to make time-horizon-specific regulatory, production/purchasing or investment decisions when facing the uncertain effects of climate change on the interactions among carbon emission allowance, crude oil and renewable energy stock markets.

Analysis of China’s Carbon Peak Achievement in 2025

To solve the problem of rising energy use and CO2 emissions, China issued the 14th Five-Year Plan in 2020, emphasizing the need to reduce its carbon intensity and achieve a carbon emission peak before 2030. In order to estimate the future path of carbon peak in China, a novel dataset was constructed to analyze 30 provinces in China, and found that the realization of carbon peaking in 2025 requires a reduction of 1.072 million tons of carbon emissions in 2025, at which point peak carbon emissions will be 11,008.4 million tons. Due to this energy gap caused by carbon emission reduction the total amount of clean electricity has reached 3600 billion kWh. In carbon emission allowance trading, provinces with large carbon emissions, like Jiangsu and Guangdong, prefer to buy carbon allowances, while those with small carbon emissions like Shanxi and Inner Mongolia prefer to sell carbon allowances. In the energy trading market, the overall situation meets the 14th Five-Year Plan of west-east and north-south power transmission, except for Shanghai, Hainan, Hubei, and other provinces selling power, due to excessive power generation from a particular energy source.

TRADING IN GREENHOUSE EMISSIONS QUOTAS: ACCOUNTING APPROACH

Over the last century, there has been a significant increase in the concentration of greenhouse gases in the atmosphere. This calls for the study of global climate change and the search for mechanisms to influence such change. The purpose of the study is to outline the legal and economic prerequisites for trading in greenhouse gas emission allowances, the formation of its accounting support based on the definition of the nature of quotas and their classification.
 The United Nations Framework Convention on Climate Change, and later the Kyoto Protocol and the Paris Agreement, aim to use the world's economic mechanisms to prevent climate change. The Paris Climate Agreement stipulates that all states, regardless of their level of economic development, undertake to reduce harmful emissions into the atmosphere. The economic instruments of the state policy on decarbonisation include: the system of greenhouse gas emission allowance trading and the environmental tax on greenhouse gas emissions. In order to provide reliable information on the number of quotas for greenhouse gas emissions, which directly affects the amount of quotas to be implemented, they must be reflected 
 in the accounting of enterprises.
 It has been proven that quotas for greenhouse gas emissions from the point of view of accounting are an intangible asset in the form of a permit for greenhouse gas emissions into the atmosphere. It is proposed to divide the quota for greenhouse gas emissions into target and surplus. At the same time, excess quotas by source of income are divided into government and other countries' quotas.
 The main significant shortcoming in the functioning of the greenhouse gas emission allowance trading system is the lack of an accounting system for greenhouse gas emission allowances, which makes it impossible to obtain reliable information on allowance trading transactions at the level of enterprises that are major players in the internal market. The issue of accounting for greenhouse gas emission allowances is a prospect for further research.

탄소배출권 시장과 연동된 전력시장에서의 시장가격 분석모형 연구

Emissions allowance trading has been used to assist in mitigation of greenhouse gas emissions. The scale of emissions from thermal power plants accounts for a large proportion of the total, so power generations in an electricity market play an important role in an emissions trading market. It is well known that competitive generations exercise market power in the oligopolistic electricity market. The competitive generations affect to exercise market power even in the emission trading market due to the coupled markets with the electricity market. This study proposes a coupled model for analyzing the competitive operation of power generation in terms of supply and demand for emissions allowance. According to case studies, it is shown that market power of power generations appears in the emissions trading market through the calculation of the Nash equilibrium in the proposed model.

Aspects of the introduction of alternative gas fuels and their influence on the quality of natural gas

The paper announces that the Ministry of Energy and Environmental Protection of Ukraine has developed the “Ukrainian Green Deal”, the ambitious goal of which is the transition to a climate-neutral economy, reducing greenhouse gas emissions and decarbonizing the economy by 2070. The “European Green Deal” provides for the achievement of similar goals by 2050. It is mentioned that the share of biomethane and “green” methane in the overall system of transmission and consumption of natural gas is planned to increase. The process of biomethane production by biogas enrichment and carbon dioxide separation is described. The perspective course of pure hydrogen production by water electrolysis due to the use of excess “green” energy from solar and wind power plants is noted. The way of complex integration of biomethane and “green” hydrogen production is suggested. The process of “methanation”, i.e. the conversion of “green” hydrogen and carbon dioxide as a waste product in the production of biomethane is described. The readiness of the NAAU to accredit verification bodies of greenhouse gas emission due to the introduction of the greenhouse gas emission allowance trading in Ukraine was stated. The calculation of the combustion heat values, density and Wobbe number for natural gas when mixed with pure hydrogen has been simulated. It is pointed that when the heat of combustion decreases and exceeds the permissible limits, the Wobbe number does not exceed the minimum set value, which indicates the absence of the need to replace gas-consuming equipment. It is argued that if it is necessary to increase the combustion heat of a mixture of natural gas with hydrogen, it is necessary to enrich it with “heavy” hydrocarbon gases.

Trading of Emission Allowances and Financial Frictions

Trading of Emission Allowances and Financial Frictions

ECOLOGICAL DUE DILIGENCE - MAINSTREAM IN INSURANCE

Introduction. In today's world, environmental problems related to accidents, natural disasters and catastrophes have been exacerbated by environmental pollution caused by the ongoing russian-Ukrainian war, which continues to this day. At the state level, in this situation, of course, it is difficult to use instruments of influence, as in Ukraine there is no legal framework that would serve as a foundation for legislative regulation of environmental insurance. Given this positioning in this context, environmental insurance becomes especially relevant, which is preceded by environmental due diligence - the mainstream of the world. Purpose. Identify the importance of environmental due diligence for the world community and prove that it is mainstream in insurance in today's world. Method (methodology). The research used such methods as logical, which allowed to analyze scientific works in the field of environmental due diligence; analysis and synthesis, which made it possible to identify factors influencing the mainstream in insurance; graphical, which allowed to interpret the results in a visual form. Results. The stages of development of climate policy in the world are determined. Emphasis is placed on decarbonisation, which includes such areas as resources (renewable energy sources, restrictions on mining, abandonment of coal generation, capture, use and storage of carbon dioxide, hydrogen energy), infrastructure (implementation and application of «green» tools), markets and carbon pricing (CO2 tax (carbon tax, transboundary carbon tax), greenhouse gas emission allowance trading system, and a combination of these approaches; carbon reporting), consumers (abandonment of internal combustion engines, limitation of emissions in the air transport sector) emission control in the maritime transport sector), investments (attraction of investment funds in "green" technologies). Direct and indirect impacts on the environment due to active hostilities are characterized. Recommendations for «green» reconstruction of the affected regions of Ukraine due to the full-scale invasion of russia are given.

The impact of economic policy uncertainties on the volatility of European carbon market

The European Union Emission Trading Scheme is a carbon emission allowance trading system designed by Europe to achieve emission reduction target. The amount of carbon emission caused by production activities is closely related to the socio-economic environment. Therefore, from the perspective of economic policy uncertainty, this article constructs the GARCH-MIDAS-EUEPU and GARCH-MIDAS-GEPU models for investigating the impact of European and global economic policy uncertainty on the volatility of the European carbon market. The results show that both European and global economic policy uncertainty will exacerbate the long-term volatility of European carbon spot return, with the latter having a stronger impact when the change is the same. Moreover, the volatility of the European carbon spot return can be forecasted better by the predictor, global economic policy uncertainty. This research can provide some implications for market managers in grasping carbon market trends and helping participants control the risk of fluctuations in carbon allowances.

Research on the Structural Mutation of Carbon Emission Allowance Trading Price of China

This paper conducts theoretical and empirical research on the structural mutation of China’s carbon emission allowance trading price. Firstly, it analyzes the possibility of price mutation from the perspective of market mechanism through theoretical analysis. Secondly, the Bai-Perron Multiple Breakpoint Test method is used to test the autoregressive model of the carbon valence sequence. It is found that the carbon emission price series of each pilot have multiple structural mutations, and the breakpoints often occur around the annual compliance date. It is believed that the compliance requirement is the direct internal factor that causes the sudden change in the carbon emission price structure. Combined with the observation of market transaction characteristics and the direction of price sudden changes, the analysis of the deeper internal causes of price sudden changes in the market lies in the poor ability of enterprises to actively manage quotas, low market transaction activity, and excessive total supply of quotas. Based on the problems and reasons reflected by the empirical test results, this paper finally puts forward three rationalization suggestions for the improvement of the carbon emission allowance trading market.

Auswirkungen der Corona-Krise auf die europ\xe4ische Klimaschutzpolitik

ZusammenfassungNeben vielen anderen negativen Folgen hat die Corona-Krise auch direkte Auswirkungen auf den EU-weiten Handel mit Emissionszertifikaten für Treibhausgasemissionen. Dieser stellt einen Eckpfeiler der europäischen Klimaschutzpolitik dar. Den kurzfristig geringer zu erwartenden Treibhausgasemissionen stehen aufgrund der erwarteten Rezession mittel- und langfristig niedrigere Preise für Emissionsrechte gegenüber. Diese machen die gegenwärtigen Produktionstechnologien tendenziell attraktiver. Dadurch wird eine wesentliche Zielsetzung europäischer Klimaschutzpolitik, der ökonomisch-rationale Wechsel der Unternehmen auf klimafreundlichere Produktionstechnologien, erschwert.

Optimal MTS and MTO Hybrid Production System for a Single Product Under the Cap-And-Trade Environment

This paper studies the optimal production planning in a hybrid Make-To-Stock (MTS) and Make-To-Order (MTO) production system for a single product under the cap-and-trade environment. The manufacturer aims to minimize the total cost in production, inventory and emissions allowances trading. The decisions include the selection of production mode (pure MTS, pure MTO or hybrid MTS/MTO), the inventory and emissions trading quantity. We derive the optimal solution analytically. We show that the cost of optimal MTO/MTS hybrid production strategy is remarkably less than that of either pure MTO or pure MTS production strategy alone. Compared with the no initial carbon quota and trading environment, there are significant differences in the optimal production decisions under trading environment. When the emissions cost is a source of costs, the manufacturer has to face more costs pressure even if there is no emissions allowance trading. In particular, the results show that the initial emissions allowance determines the optimal production decision and emissions allowance trading decision in cases where the difference between the inventory cost for per unit product and the delayed delivery cost for per unit order is between the minimum and the maximum emissions cost and has no effect on production mode and emissions allowances trading decision in other cases. These conclusions will provide optimal production decision and carbon trading decision for the manufacture under a cap-and-trade environment.

АДАПТАЦІЯ УКРАЇНСЬКОГО ЗАКОНОДАВСТВА У СФЕРІ ЗАПОБІГАННЯ ЗМІНАМ КЛІМАТУ ДО ACQUIS COMMUNAUTAIRE ЄВРОПЕЙСЬКОГО СОЮЗУ

The article examines the current state of the Association Agreement implementation in terms of national legislation on climate change and the protection of the ozone layer compliance with the requirements of the EU legal acts listed in Annex XXX to Chapter 6 "Environment" of that Agreement. Under the Association Agreement, such harmonization entails the need to bring national legislation into line with Directive № 2003/87/EC establishing a Community greenhouse gas emissions trading scheme by September 1, 2019 and amending Directive № 96/61/EC ~ 18 ~ ВІСНИК Київського національного університету імені Тараса Шевченка ISSN 1728-3817 as amended by Directive № 2004/101/EC; Regulation (EC) № 842/2006 on certain fluorinated greenhouse gases; Regulation (EU) № 2037/2000 on substances that deplete the ozone layer, as amended and the amendments made by the Regulation (EU) №№ 2038/2000, (EU) 2039/2000, (EU) 1804/2003, (EU) 2077/2004, (EU) 29/2006, (EU) 1366/2006, (EU) 1784/2006, (EC) 1791/2006 and (EC) 2007/899, and Decisions №№ 2003/160 /EC, 2004/232/EC and 2007/54 /EC. The analysis of the national legislation shows that Ukraine as a whole fulfilled its obligations to adapt national legislation to the EU legislation in terms of setting up a monitoring system, reporting and verification of greenhouse gas emissions. The Law of Ukraine "On the Basics of Monitoring, Reporting and Verification of Greenhouse Gas Emissions" was adopted on 12 December 2019. The law comes into force on 1 January 2021. At the same time, it is necessary to adopt by-laws to ensure the effectiveness of the provisions of the aforementioned Law, since as of 1 April 2020 no legislative act has been adopted in its development. Ukraine has also fully fulfilled its obligations to implement the provisions of Regulation (EC) № 2037/2000 on substances that deplete the ozone layer and the provisions of Regulation (EC) № 842/2006 of the European Parliament and of the Council on certain fluorinated greenhouse gases. The Law of Ukraine "On Regulation of Economic Activity with Ozone-Depleting Substances and Fluorinated Greenhouse Gases" was adopted on 12 December 1 2019. The law comes into force on 27 June 2020. The article proves that the legal acts, necessary to introduce internal greenhouse gas emission allowance trading scheme and other market and non-market greenhouse gas emission reduction instruments of these gases in accordance with Ukraine's obligations under the Association Agreement have not yet been adopted. Also there is the necessity to make amendments to the Regulation on the Interagency Commission on Implementation of the United Nations Framework Convention on Climate Change, approved by the Cabinet of Ministers of Ukraine Decree № 583 of April 14, 1999, to extend its tasks in accordance with the provisions of the Paris Agreement. Keywords: the Association Agreement; climate and ozone protection; fluorinated greenhouse gases; monitoring of greenhouse gas emissions; ozone-depleting substances; reporting of greenhouse gas emissions; verification of greenhouse gas emissions.

The Case against Carbon Prices

Professor Dr. Anthony Patt is head of the Climate Policy Group in the Department of Environmental Systems Science at ETH Zurich, Switzerland. His research focus is on technological pathways and public policies for climate change mitigation and adaptation. He is a Coordinating Lead Author in Working Group III of the Intergovernmental Panel on Climate Change. He obtained his PhD at Harvard University's Kennedy School of Government. He is the author of “Transforming Energy: Solving Climate Change with Technology Policy” (Cambridge University Press, 2015). Download : Download high-res image (204KB) Download : Download full-size image Professor Dr. Johan Lilliestam is head of the Renewable Energy Policy Group in the Department of Environmental Systems Science at ETH Zurich, Switzerland. His research focus is policies and strategies for a transition to a completely renewable energy system, including the effects of interactions between different energy policies. He obtained his PhD at the Central European University in Budapest, Hungary. Before joining the ETH, he worked at the Potsdam Institute for Climate Impact Research (PIK) in Potsdam, Germany, and the International Institute for Applied Systems Analysis (IIASA) in Laxenburg, Austria. He currently holds a grant from the European Research Council for his work on policy interactions. Download : Download high-res image (202KB) Download : Download full-size image

Znaczenie Mechanizmu Rezerwy Stabilizacyjnej (MSR) dla reformy systemu handlu uprawnieniami do emisji CO2

Znaczenie Mechanizmu Rezerwy Stabilizacyjnej (MSR) dla reformy systemu handlu uprawnieniami do emisji CO2