Emission Allowances Research Articles

Emission regulation: Prices, quantities and hybrids with endogenous technology choice

This paper examines the investment incentives of market-based regulation, focusing on the technology characteristics that different regulatory schemes tend to incentivize. The firms’ technology choice is socially optimal if and only if the aggregate emission allowance supply is completely inelastic. Furthermore, in the presence of uncertainty, elastic emission allowance supply, and strictly convex environmental damage, it is optimal to tax investments in technologies that induce a large variance in emissions. Lastly, price elastic supply of emission allowances may either increase or decrease the volatility in the product market, depending on the risk environment the firms face. The results indicate that introduction of permit price-stabilizing measures in an emission trading system will come at the cost of suboptimal technology investments, and may also lead to increased fluctuations in product prices.

Decarbonization and the obstacles to carbon credit accounting disclosure in financial statement reports: the case of UAE

PurposeThis study investigated the visibility of carbon emissions allowances accounting in the financial reports of 32 clean development mechanism (CDM) projects in the UAE to uncover the obstacles to setting consistent standards for carbon emission accounting. As carbon emissions are monetized as credits, consistent accounting standards can aid decision-makers in the development of carbon emission mitigation strategies.Design/methodology/approachThis study used a grounded theoretical framework for exploring the terms used in the policy documents of international accounting bodies regarding accounting standards and guidelines for carbon emission credits. Raw qualitative data were gathered, and an inductive approach was used by analyzing documents from various sources using the qualitative data text analysis software QDA Miner 6.FindingsThe findings showed that the financial statement reports of the corporations did not include disclosure of the carbon credit account. This omission was due to the lack of global standardization of carbon credit accounts and emission allowance recognition. This may hinder the production of a comprehensive report containing accurate and valuable financial information relevant to all stakeholders.Originality/valueThe study is among the first to use a grounded theoretical framework to investigate whether corporations are applying common standards and guidelines for carbon emissions accounting.

Comparing Carbon Regulation Scenarios for BRICS and EAEU Economies Using a GTAP-E Model

The paper compares the economic effects of a national carbon tax with those of an emission trading system (ETS) between EAEU and BRICS countries over the medium term. Also included are Uzbekistan, which has observer status in the EAEU, and Turkmenistan, which is an EAEU trade and economic partner. The static computable general equilibrium model GTAP-E is employed. Targets for reducing emissions are formulated on the basis of the countries’ intermediate goals as stated in their respective submissions under the Paris Agreement. The resulting simulations show that, in terms of real GDP, an emission trading scheme would be more favorable than national taxation for countries such as Brazil, India, Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan. However, for China, South Africa, Uzbekistan and Turkmenistan, resorting to an ETS would produce a comparatively greater reduction in GDP. Because the second group of countries has lower abatement costs than the equilibrium carbon price under an ETS, that scenario would permit those countries to reduce emissions by a greater amount and sell emission allowances. The analysis also shows which sectors would increase production after carbon regulation. A considerable increase in production and exports would occur for chemicals and for ferrous and nonferrous metals in several BRICS and EAEU countries. Although those industries are energy-intensive, the countries concerned could decrease emissions by reducing production in the energy or other sectors. These industries could benefit from potential joint comparative advantages in the context of declining demand for traditional energy sources. These findings should be valuable in devising integration policy.

Exploring the potential of biological methanation for future defossilization scenarios: Techno-economic and environmental evaluation

The REPowerEU plan establishes the production objective of 35 billion m3 of biomethane in the European Union (EU) by 2030. Biomethane is an excellent energy vector to promote the defossilization of different sectors within a Power-to-Gas approach. The present study evaluates the economic and environmental implications of producing biomethane from the biogas generated in a municipal wastewater treatment plant (WWTP) with a treatment capacity of 100,000 m3/d and 500,000 population equivalents. The techno-economic analysis (TEA) and life cycle assessment (LCA) were conducted for a biomethane production plant based on biological methanation process using the hydrogen produced in a water electrolyser. The TEA illustrated that the electricity price (0–0.20 €/kWh) features an important impact on the biomethane cost (0.05–0.23 €/kWhHHV) due to the high electrolyser energy consumption. Flexible operation of the electrolyser is economically feasible at load factors above 35 %, which can be attributed to the lower impact of the electrolyser capital cost as the load factor increases. The LCA illustrated that biomethane has a lower global warming impact (<0.28 kgCO2-eq/kWhHHV) than fossil natural gas when the renewable electricity production in the mix is above 62 %. The results highlighted that high carbon prices under the EU Emission Trading System is an important driver to promote biomethane production in European countries since energy production from biomethane could be exempted to acquire emission allowances. This would provide a competitive advantage of biomethane over natural gas when considering the whole supply chain of the energy carrier. Overall, this study demonstrates that biological methanation has the potential to become an important biomethane production technology for future defossilization scenarios.

Is District Heating a cost-effective solution to decarbonise Irish buildings?

Achieving decarbonisation of the heating sector is a major challenge, especially in Ireland, which has the lowest proportion of renewable heat in Europe. In economically pursuing ambitious and equitable climate targets, Ireland’s Climate Action Plan 2023 set a goal of reaching 2.5 TWh of district heating by 2030, starting from a limited existing capacity. This pioneering study explores supply sources and heat density demand cohorts to develop a model to understand district heating in a low-deployment region, using Ireland as a case study. We also conduct a sensitivity analysis considering different connection rates.Our research demonstrates that district heating is pivotal in achieving optimal decarbonisation pathways. Incorporating district heating reduces marginal CO2 emission prices by 13%–25%. Additionally, with feasible growth limits applied, total savings for the energy system are anticipated to reach €17.2 billion by 2050. This reduction of emissions in the building sector, facilitated by district heating, allows for greater emissions allowances in other sectors and reduces reliance on electricity while meeting climate targets. These insights highlight the need for spatial energy policies and deepen our understanding of integrating district heating within an energy system optimisation model.

The economics of carbon leakage mitigation policies

In a trade model with endogenous emissions abatement, we investigate the impact of three policy instruments aimed at mitigating carbon leakage: free emission allowances, a Carbon Border Adjustment Mechanism (CBAM), and a CBAM with export rebates. We show that providing free allowances does not alter the incentives to abate carbon emissions, but, instead fosters the entry of more carbon intensive producers. This “levels the playing field” both domestically and internationally, and may even reverse carbon leakage. In contrast, a CBAM only levels the playing field domestically, and may lead to an autarky equilibrium. To reverse carbon leakage, a CBAM must be complemented with export rebates. We further show that a CBAM and export rebates improve welfare for any carbon price, and we identify the optimal share of free allowances with or without a CBAM. Finally, we perform a calibration exercise on cement and steel sectors to simulate the effects of the CBAM recently adopted by the European Union. Our model predicts a scenario with reverse carbon leakage and significant welfare gains for both sectors.

Analysis of the Potential Impact of the EU Carbon Border Adjustment Mechanism on China

Excessive carbon dioxide emissions are one of the major causes of global warming. To effectively respond to global climate change, all countries are making efforts and changes in this regard. As one of the largest carbon markets in the world, the European Union (EU), to better respond to the Paris Agreement, introduced the European Green Deal and the EU Carbon Border Adjustment Mechanism (CBAM). The mechanism requires that high-carbon products imported into or exported from the EU pay a corresponding amount of tax or refund the corresponding carbon emission allowances. The implementation of the EU Carbon Border Adjustment Mechanism (CBAM), which is essentially a carbon tariff, has also had a significant impact on the Chinese market. The more carbon-intensive steel industry has been the first to be hit, affecting the competitiveness of the industry's exports in the EU to a certain extent, while also increasing compliance costs for the development of other related industries. Chinese enterprises should strengthen innovation and research, and actively introduce low-carbon technologies. At the same time, China should continue to improve its own voice and accelerate the construction of the national carbon market.

Does the South African Carbon Tax Incentivise Mines to Invest in Solar Photovoltaic?

The aim of this study was to evaluate the adequacy of South Africa’s carbon pricing policy in incentivising adoption of Solar photovoltaic in South African mines. A qualitative study was conducted to evaluate the adequacy of South Africa’s carbon tax policy design to encourage adoption of solar photovoltaic in mines. The study further establishes the carbon pricing level that will induce South African miners to invest in Solar photovoltaic through a net present value simulation. A review of South Africa’s Carbon Tax regime highlights that the policy shortcomings can be attributable to low carbon prices, excessive free emission allowances, and continued subsidy support of fossil fuels. Furthermore, the carbon price needs to exceed cost of abatement to encourage investment in decarbonisation measures. A net present value simulation finds that a carbon price of ZAR 668.62 per tonne of CO2 would need to be levied to incentivise mining entities to invest in solar photovoltaic. The study recommends higher carbon prices be levied for carbon for emissions to encourage mining entities to adopt solar photovoltaic renewable energy. The paper contributes to tax policy scholarship on designing a carbon pricing model for South Africa’s mining sector. Decarbonising the mining industry, a significant contributor of GHG emissions, will advance the decarbonisation efforts of South Africa.

Pricing of Chinese Certified Emissions Reduction Scheme in a Supply Chain Under the Cap-and-Trade Policy

Abstract Against the backdrop of carbon trading, the Chinese Certified Emissions Reduction (CCER) scheme is one of the most important measures of China to reduce carbon emissions. We study a supply chain consisting of a CCER supplier and a manufacturer that buys CCER quotas from the supplier. The supplier is a non-emissions-control enterprise engaged in clean energy projects, while the manufacturer is classified into three types: a clean, a relatively clean, and an unclean firm. We analyse the impacts of the price and offset rate of CCER quotas on firms’ emissions reductions. We find that when the price of CCER quotas is lower than the price of Chinese Emissions Allowances (CEAs): (1) for both clean and unclean manufacturers, with increasing CCER offset rate (quota price), technical emissions reduction decreases (increases). (2) The incentive for the relatively clean manufacturer to reduce emissions is not affected by other extraneous factors. When the prices of CCER quotas and CEAs are uncertain, we find that (1) the technology abatement decisions of the three types of manufacturer are consistent and the corresponding CCER suppliers price their CCER quotas in the same way. (2) When the proportion of CCER quotas purchased by the manufacturer increases, the unit technical emissions reduction increases. Confirming that introduction of the CCER scheme can reduce carbon emissions, our findings provide theoretical guidance for suppliers to make pricing decisions on CCER quotas and for manufacturers to make technical emissions reduction decisions.

Sustainable supply chain planning with the flexible provisions of inter-period emission credits borrowing and banking under a multi-period carbon trading scheme

Although the carbon emission trading regulation proves its advantage of reducing abatement costs, the timing of operating activities makes overage or shortage of allocated emission allowances quickly happen in single-year compliance, thus increasing abatement costs. The provision of inter-period emission credits banking and borrowing in a multi-period compliance phase can give emitters flexibility in emission compliance, which practices world-widely. In this study, we investigate the impact of carbon trading with inter-temporal emission credits borrowing and banking on a production–inventory–distribution system’s supply chain network decision-making and its compliance strategies by proposing a novel two-stage stochastic programming. A scenario-based robust optimization approach is presented with a post-optimization stage to obtain robustness-profit-environment balanced decision-making considering uncertain demand and stochastic carbon-trading price. The results suggests emitters should adopt specific greener techniques to reduce related emissions with priority under carbon-trading policies. The results also show the provision of carbon credits borrowing and banking has a positive influence on enhancing the efficiency in supply chain economic and ecological performance. Besides, given the flexible provisions, the manager can reallocate emission credits according to its business’s operation, and transfer more emission credits to periods of higher carbon-trading price. This findings also suggest banking in early periods instead of carelessly borrowing from future, for uncertainty in future business might make it harder or impossible to comply with emission regulation at last. To regulators, it should prevent borrowing explicitly or allow it only to a limited extent.

Carbon finance and low-carbon technological change: Evidence from China

Promoting carbon finance is considered a solution for supporting climate change mitigation. This article investigates the impact of carbon finance development on low-carbon technological change, exploiting textual analysis technology to measure the low-carbon innovation quality of 2953 CO2 emission allowance enterprises and evaluating the carbon finance index of eight pilots. Our panel regression results from 2014 to 2021 show that carbon finance encourages enterprises with CO2 emission allowances to upgrade their low-carbon innovation quality. The findings remain robust after using a variety of tests, including the instrumental variable (IV) approach, alternative innovation quality measure, replacement patent application with grant, etc. Our heterogeneity results indicate that the effect of carbon finance on low-carbon technological change is only statistically significant in non-state-owned enterprises, resulting from administrative government intervention in China's carbon market. Additionally, enterprises with stronger technology intensity show a statistically significant impact of carbon finance on the quality of low-carbon innovation. Furthermore, the mechanism shows that the effect of carbon finance on low-carbon technological change can be attributed to strengthened R&amp;D intensity and mitigated financial constraints. This study sheds light on the positive significance of carbon finance and has a certain guiding role for the promotion path of China's national carbon market to support low-carbon transformation.

Emission Allowances and Carbon Credits as Property: A Finnish Perspective

Abstract 148Whether emission allowances and carbon credits constitute property is an interesting legal question in every private law system. EU ETS allowances and similar allowances are instruments that are used to settle obligations based on previous emissions. If the concept of property is defined at the level of rights, allowances should not be considered as property. Yet, they may qualify as objects that can be owned. We come to this conclusion in Finland where the concept of property is usually defined so that property consists of patrimonial rights. Furthermore, ownership of allowance is property. Similarly, CERs under Article 12 of the Kyoto Protocol and A6.4ERs under the Paris Agreement do not constitute property under Finnish private law but qualify as objects of ownership. The same findings apply to carbon credits issued by independent crediting mechanisms, presuming it is reasonable to conceptualize the credits at hand as objects of ownership.

Techno-economic assessment of the CO2 value chain with CCUS applied to a waste-to-energy Italian plant

Recently, post-combustion CO2 removal has been considered also for the CO2 separation from the flue gases of Waste-to-Energy (WtE) plants, that manage high amounts of Municipal Solid Waste (MSW) by combusting it and generating power and heat. Moreover, because of the presence in MSW of an organic waste fraction, net negative CO2 emissions are feasible when integrating CCUS systems into WtE plants. Currently, to the best of the authors’ knowledge, there are only few incineration plants around the world that are successfully coupled with a carbon capture system, resulting in near-zero (or even negative) CO2 emission power generation.This work focuses on the evaluation of the whole value chain of the non-biogenic CO2 that is emitted in a power plant located in Northern Italy and on its possible utilization, from the CO2 source in the flue gas to the market-ready product.The design of the process for the CO2 removal from the flue gas has been carried out specifically for the considered flue gas to be treated with an aqueous solution of MonoEthanolAmine 30% wt., the benchmark solvent used in other types of power plants (fuelled by coal and natural gas). The main process parameters (e.g., lean loading, absorber packing height, regenerator packing height, regenerator pressure, gas inlet temperature, solvent inlet temperature) have been selected in order to optimize the reboiler duty and the water requirement, the latter being usually not considered in literature works dealing with this type of analysis. Then, the CO2 utilization has been evaluated, considering the options of both sequestration in the Adriatic Sea and utilization of CO2 for production of sodium bicarbonate, on the basis of the information available in the literature.In compliance with Directive 2003/87/EC and with the Italian legislation, Waste-to-Energy plants that treat municipal solid waste are currently exempt from the application of the CO2 Emissions Trading System (ETS). This article speculates about the application of the ETS to an urban WtE plant, located in Northern Italy, and evaluates its economic implications by comparing the purchase of emission quotas with the construction of a CCS or CCU plant.A business plan, detailing the obtained revenues from the utilization and from the avoided cost of purchasing emission allowances and the expenses related to the operation of the carbon capture plant, taking into account the taxes and the inflation, has been created and used for comparing the two considered CO2 value chains. For the option of CO2 sequestration, sensitivity analyses on the variation of investment costs (+10 %), operating costs (+10 %) and revenues (−10 %) have been performed and the breakeven value of the ETS certificate that can make the Net Present Value (NPV) non-negative has been determined. For the option of CO2 utilization, the revenue from sodium bicarbonate that can make its production profitable has been evaluated.

Heat Pump as an Emission Reduction Measure for Ships

Greenhouse gas regulations from the International Maritime Organization, such as the Carbon Intensity Indicator and the Energy Efficiency Existing Ship Index are drawing attention to the implementation of energy efficiency technologies in ships to lower emissions. Presently, more attention is paid to energy efficiency measures related to propulsion (e.g. speed management) and auxiliary energy use (e.g. onshore power). This study compares the environmental impact and cost of replacing heat pumps as an energy efficiency measure instead of oil-fired boilers for two case study vessels by comparing the life cycle impact of different strategies to fulfill the thermal load of vessels while at the port. In terms of life cycle emissions, the heat pump operated using onshore power has the potential to reduce global warming potential by 88% compared to an oil-fired boiler. This accounts for saving 3% and 8% of annual greenhouse gas emissions from entire ship operations, including emissions from engines for the respective case study ships. In addition, shifting to a heat pump avoids NOx and SOx emissions, which adversely affect air quality in the populated areas near the port. Cost results show that the heat pump has an overall higher cost of ownership for case study vessel 1 and a lower cost of ownership for case study vessel 2 compared to oil-fired boiler. Depending on the energy use of specific ships, heat pumps can be cost-competitive at existing carbon emission allowance prices (approximately 90€/tCO2) in the European emission trading system. For the assessed cases, with the emission trading scheme, the return on investment is less than six years and three years for case study vessels 1 and 2 respectively. The study also shows that operating a heat pump is more cost-effective than directly using electro-fuel in a boiler for thermal loads.

A generation and transmission expansion planning model for the electricity market with decarbonization policies

Globally, the power sector must undergo a profound transition to achieve the decarbonization development targets. Various roadmaps are implemented, but only from a macro perspective, lacking the consideration of the electricity market rules. In this paper, we develop and present a market-driven generation and transmission expansion planning (MGTEP) model considering the effectiveness of the electricity market. Specifically, generation and transmission companies incorporate hourly market trading and annual capacity investment into strategic decisions to maximize their profits, with the supply function equilibrium model to analyze bidding behaviors. An equivalent quadratic programming formulation is deployed to solve the trilevel MGTEP model. Meanwhile, the MGTEP model is coupled with decarbonization policies to support the state and federal government in assessing energy transition strategies. We implement the MGTEP model with carbon emission allowance and carbon tax policies for the southern China electricity market to achieve carbon peaking by 2030. Carbon emission allowance adopts an intensity-based cap based on generation companies' historical output. The case study results show that 50 % carbon emission allowance or 400 CNY/t carbon tax is required but with several drawbacks, including unsatisfactory decarbonization effect, excessive economic sacrifice, etc. Finally, the case study is extended to dual-track policies with different combinations of policies. An optimal combination is 70 % carbon emission allowance and 160 CNY/t carbon tax. In this case, the power sector's carbon dioxide emissions and electricity prices in the southern China electricity market would increase to 554.6 Mt and 864.34 CNY/MWh in 2030, respectively, along with a carbon price of 850 CNY/t.

Carbon and financial performance nexus of the heavily polluting companies in the context of resource management during COVID-19 period

The depletion of fossil fuels and the new EU climate policy goals to achieve a zero-emission economy after 2050 encourage highly polluting companies to increase the efficiency of energy conversion from non-renewable energy sources, develop renewable energy sources and implement resource management systems in production. Studying the relationship between environmental performance and financial performance of firms is particularly important in times of the Covid-19 pandemic, as companies' decisions to limit or continue green investments and low-emission transformation may impact access to external financing sources. The aim of this study is to identify the shape of the relationship between the carbon and financial results of heavily polluting enterprises in the context of resource management and to assess the impact of the Covid-19 pandemic on the considered relationship. For a panel sample of Polish enterprises representing highly polluting industries with manufacturing plants covered by the EU ETS in 2009–2021, a third-degree polynomial describing this relationship was estimated. A U-shaped relationship was identified between carbon emission intensity and return on sales and return on assets, which can be explained by the ‘too-little-of-a-good-thing’ effect. Increase in share of renewable energy in the production structure significantly reduces firms’ profitability, which can be explained by the relatively high costs associated with the development of renewable energy and the changing legal regulations regarding this type of investment. It has been shown that companies with high carbon emission intensity achieved lower sales profits and return on assets compared to companies with lower carbon intensity during the Covid-19 pandemic. The lower scale of allocation of free emission allowances compared to previous years, combined with the increase in emission allowance prices under the influence of shocks generated by the pandemic, had a negative impact on the profitability of heavily polluting companies. The modelling results provide important information to managers who, based on them, can make more informed decisions regarding the use of natural resources in production and the involvement of enterprises in investments aimed at the use of cleaner production technologies and the development of renewable energy.

Accounting for Carbon Emission Allowances - An Accounting Suggestion

Accounting for Carbon Emission Allowances - An Accounting Suggestion

Empirical Study on Factors Influencing the Price of Shanghai Carbon Emission Allowances—Based on VAR Model

Empirical Study on Factors Influencing the Price of Shanghai Carbon Emission Allowances—Based on VAR Model

Optimization of Initial Carbon Emission Allowance Allocation in Industrial Industries: A Case Study of Zhejiang Province, China

The construction of carbon market is one of the important means for China to reach the goal of carbon peaking and carbon neutrality, and the allocation of initial carbon emission right quota is the key link in carbon market transaction. At present, the historical method is the commonly used allocation method of initial carbon emission rights in China, and the use of this method is unfair and inefficient. Therefore, this paper proposes an allocation optimization model, selects a number of indicators, and optimizes the allocation of initial carbon emission rights based on the hierarchical analysis method and entropy weight method. Example analysis shows that the allocation optimization model helps to share the carbon emission responsibility and improve the allocation efficiency, realizes the optimal allocation of initial carbon emission rights among industrial sectors, and provides support for the emission reduction of industrial sectors.

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.