Emissions Trading Scheme Research Articles

A novel optimization method of carbon reduction strategies implementation for industrial parks

The effects of various energy conservation and carbon reduction (ECCR) strategies can differ significantly despite equal investment. Given limited amount of capital expenditure, managers and planners of industrial parks must carefully select from different ECCR strategies and implementation technologies to maximize investment returns. This study establishes mathematical models for four ECCR strategies: forestry carbon sequestration (FCS), carbon capture and utilization (CCU), waste heat recovery (WHR), and photovoltaic (PV). A universal ECCR planning optimization model is constructed to maximize annual economic benefits or carbon emission reduction. Using an industrial park in southern China as a case study, genetic algorithms are utilized to solve the model and validate its feasibility. The study analyzes three key parameters: capital expenditure caps, carbon trading price in the Emission Trading Scheme, and transportation distance of captured CO2 products for sensitivity. The results demonstrate considerable economic benefits of the CCU strategy when demand matches appropriately. However, in cases with limited capital expenditure, implementing small-scale FCS strategies in industrial parks is not advisable from both an economic and environmental perspective.

Assessing capital allocation efficiency under environmental regulation

Utilizing data from 2010 to 2021 from listed firms, this study examines the relationship between environmental regulation and capital allocation efficiency. The empirical findings reveal that the implementation of carbon emissions trading scheme pilots plays a pivotal role in diminishing capital misallocation within firms. This effect is more pronounced in state-owned enterprises, firms facing high financial constraints, those operating in highly competitive markets, and organizations that are not part of the high-tech or high-pollution industries. These findings highlight the significant role of macro-level environmental regulations in improving micro-level organizational capital efficiency.

The impact of market-based environmental regulation on corporate ESG performance: A quasi-natural experiment based on China's carbon emission trading scheme

At present, there are few studies exploring the impact of market-based environmental regulation on ESG performance based on the perspective of carbon emission trading scheme (CETS). This paper aims to supplement this research field through empirical analysis. Taking Shanghai-Shenzhen A-share listed companies from 2012 to 2022 as the research object, this paper studies the impact of CETS, a market-based environmental regulation tool, on the ESG performance of enterprises by constructing a time-varying DID model and examines the mediating roles of green technology innovation, agency cost and analyst attention. The results show that the implementation of CETS can significantly boost ESG performance, and green technology innovation, agency cost, and analyst attention play a partial intermediary role between the two, while the mediating effects of green total factor productivity and green total factor energy efficiency are not significant. In terms of heterogeneity analysis, the study shows that CETS implementation has a more substantial promotion effect on ESG performance in non-state-owned enterprises, non-politically connected enterprises and non-high-tech enterprises. In this paper, the robustness test was carried out through PSM-DID, placebo test and replacement of explained variables, and the test results further supported the hypothesis in this paper. This study enriched the research on the impact of market-based environmental regulation on ESG from the perspective of CETS. It provided enlightenment for enterprises to improve ESG performance to a strategic level, improve the level of green technology innovation, and the government to implement differentiated environmental governance policies.

Carbon emission trading, technological progress, synergetic control of environmental pollution and carbon emissions in China

This study introduces three production technology shocks (Energy manufactures, Brown enterprises, and Green enterprises) by constructing different models, namely, the environment sector (baseline) model, the carbon emissions trading scheme (ETS) model, and the carbon emissions rights trading mechanism. The fluctuation trend of China's macroeconomic and environmental quality before and after the establishment of carbon market is compared and analyzed. Additionally, the study examines the welfare of the implementation of carbon market policies. The carbon trading market policy can promote the synergistic efficiency of China's pollution reduction and carbon reduction using energy and green production technologies. From the perspective of social welfare, the optimal range of the initial carbon quota ratio issued by the government to enterprises is [0.7,0.8]. The findings of this study provide theoretical support and contribute toward understanding the impact mechanisms of carbon market and technological progress on synergizing the reduction of pollution and carbon emissions in China.

Heterogeneous environmental consciousness, carbon permit adoption, and endogenous growth: A case of China

Motivated by low participation rate in China’s pilot Emission Trading Schemes (ETS), yet there being ample empirical evidence of carbon permit activities having an impact on firms’ technological innovation choice, we develop a novel endogenous growth model with carbon accumulation where both the green behaviors of non-corporate individuals and carbon permit adoption choice of corporate owners are influenced by heterogeneous environmental consciousness. Calibrated for China based on ETS price data, we examine the impacts of both long-run policy experiments and short-run cyclicality associated with carbon permit prices. we find that long-term greater ETS trading affordability would incentivize more firms to participate and bring about a reduction in carbon ratio, though it is still largely bounded by the conventional environment-growth trade-off that it requires supplementing it with other policies. In the short run, we find that higher carbon permit trading price would be procyclical to economic expansion but at the cost of environmental degradation too. In combination, this presents a policy dilemma: while improving ETS trading affordability is a long-run policy priority in China, in the short-run, absent fundamental changes, the procyclicality between carbon permit price and economic growth would serve as counteracting forces to this.

The impacts of carbon emissions trading scheme on green finance: evidence from China.

China enacted and implemented a carbon emissions trading pilot policy in 2011, and whether this carbon emissions trading scheme (ETS) can promote the development of green finance is crucial to realizing a win-win situation for both environmental and economic performance. Based on the panel data of 30 provinces in China from 2007 to 2019, this study constructs a multi-period double-difference model (DID) to explore the impact of carbon ETS on the development of green finance and uses the spatial Durbin model (SDM) to test whether there is a spatial spillover effect of the carbon ETS on the development of green finance. The results show that (a) the implementation of carbon ETS significantly promotes the development of green finance, and this conclusion still holds through a series of robustness tests; (b) the promotion effect of the carbon ETS on the development of green finance is more significant in eastern and western provinces, non-resource-based provinces, and provinces with a high level of openness to the outside world; (c) industrial structural upgrading and green innovation play pivotal roles in achieving the desired outcomes of carbon ETS; (d) carbon ETS have spatial spillover effects on the development of green finance, with the indirect effects being more significant than the direct effects. The findings of this study can serve as a valuable reference for expediting the establishment of a unified national carbon market and the development of a robust green financial system. This holds immense significance in effectively implementing the "dual-carbon" strategy.

Greening your way to profits: Green strategies and green revenues

We examine hot-debated but underexplored questions of whether and how green strategies affect corporate green revenues. Using a generalized Difference-in-Differences (DiD) framework, we find that green strategies significantly enhance corporate green revenues in the presence of China's Emission Trading Scheme (ETS) pilot. This is consistent with the Porter Hypothesis. Our mechanism analyses document that green strategies increase green revenues by improving green quality and catalyzing environmentally friendly transformation. This study has important implications for policymakers and practitioners, offering new insights into the intended consequences and real outcomes of environmental regulations.

Do China's pilot emissions trading schemes lead to domestic carbon leakage? Perspective from the firm relocation

The limited geographical coverage of pilot emissions trading schemes (ETS) raises domestic carbon leakage risks. Since relocation represents a primary channel that causes carbon leakage, this paper investigates the impact of China's pilot ETSs on firms' cross-provincial relocation with a method combining propensity score matching and staggered difference-in-differences. The empirical results, based on the data of Chinese listed industrial firms from 2009 to 2020, show that the ETS has accelerated firm relocation by increasing negative attention and social capital investments. According to the threshold analysis, firms with sufficient abatement efforts do not undertake relocation strategies. The theoretical analysis can also be confirmed by further investigations on the price signal distortions and the negative impact of relocation on carbon prices. Moreover, the study also demonstrates the heterogeneous effects across firm characteristics, industry types, and policy design features. Overall, these findings provide a reference for China's government to prioritize the establishment of domestic leakage prevention mechanisms for ETS.

Faking for fortune: Emissions trading schemes and corporate greenwashing in China

Market-based environmental regulations are pivotal in facilitating the reduction of emissions. This paper employs a staggered difference-in-differences (DID) strategy to investigate the impact of Emissions Trading Schemes (ETS) on corporate greenwashing behavior. The findings suggest that ETS act as a catalyst for corporate greenwashing by intensifying financial distress, as demonstrated that the effect is notably more substantial among firms with heightened financing constraints and greater performance volatility. Further analysis reveals that corporate greenwashing behavior induced by ETS is more pronounced where market competition is higher, firms are smaller, R&D investment is lower, or intensity of environmental regulation is lower. This paper provides valuable insights for understanding the comprehensive picture of ETS.

Computable general equilibrium analysis of neutral carbon trading scheme and revenue recycling impacts on income distribution in China

Utilizing a dynamic computable general equilibrium (CGE) model, this paper critically assesses the potential distortions and efficacy of various revenue-neutral carbon emission trading schemes (ETSs) in China, through government subsidies and value-added tax (VAT) relief strategies aimed at achieving peak carbon emissions before 2030. The analysis reveals that reallocating market revenues to the production sector, either through government subsidies or VAT reductions, can feasibly attain carbon peaking before 2030, with minimal impact on GDP. Notably, both government subsidies and VAT cuts foster output growth in the oil, gas, and ETS-covered sectors. Moreover, directing carbon market revenue toward ETS-covered industries via VAT relief emerges as the most effective approach to reducing income disparities. In contrast, redistributing carbon market revenue to non-ETS-covered industries via VAT relief is found to be the least effective in promoting social equity. The study emphasizes that the reallocation of carbon market revenues to ETS-covered sectors is paramount. This strategy not only regulates the overall energy consumption effectively but also steers the nation towards a more sustainable and optimized energy consumption pattern. In light of these findings, this paper offers detailed insights and tailored policy recommendations, aiming to assist policymakers in striking a balance between environmental goals and economic and social imperatives.

Does carbon emission trading policy induce financialization of non-financial firms? Evidence from China

The carbon emission trading scheme influences firms’ operation costs, which may induce resource diversion to financial investments. By using a sample of Chinese A-share non-financial listed firms that are subject to carbon emission trading pilot programs in China, this paper employs a differences-in-differences analysis to test the impact of carbon emission trading on firms’ financial asset allocation. We find that carbon emission trading significantly increases corporate financialization, especially long-term financial assets. The effect is stronger in firms with stronger profit-seeking incentives and weaker governance, suggesting the mechanism of capital profit-seeking and management opportunism under increased operation costs and risk. Further heterogeneity analysis indicates that the positive association between carbon emission trading and corporate financialization is more pronounced in non-state-owned enterprises, carbon-intensive firms, and firms in regions with developed financial markets or more volatile carbon markets.

An environmental and economic investigation of shipping network configuration considering the maritime emission trading scheme

Decarbonization is currently an urgent issue for the international shipping industry. The maritime Emission Trading Scheme (METS) is an effective measure, while the utilization of the Arctic Northeast Passage (NEP) and carriers' profit-driven reactions may affect its effectiveness. Thus, this paper proposed an optimization model to investigate the carrier's economic viability and the CO2 emission under METS for the SCR/NEP-combined liner shipping service. Various METS scenarios are set based on 1) geographical scope (GS), 2) free emission quota percentage (FEQP), and 3) carbon price (CP). Results show that METS would guarantee a short-term CO2 emission reduction within the GS, but the volume of overall CO2 emission in some scenarios would be even larger. In individual cases, METS positively affects the carrier's economic viability. METS disincentivizes carriers to use the NEP, especially when it is implemented in the Arctic area or with high pricing. For carriers, the main countermeasure to cope with METS is slow steaming in the GS. Some valuable insights for policymakers designing METS: it is not the case that the higher the value of GS/FEQP/CP, the better the overall CO2 emission reduction effect. A moderate GS and CP may be appropriate for balancing carriers' economic benefits and emission reduction efficiency, in whole or in part. FEQP can be set relatively low at the start of METS and raised gradually to motivate the carriers in emission control.

How does the carbon trading scheme promote the decarbonization of China’s power sector?

Evaluating the effect of the carbon emissions trading scheme (ETS) on the decarbonization of the power sector is a basic task in the construction of China’s ETS. We use the energy flow relationship between the power and heat sectors to develop a more accurate accounting framework for CO2 emissions in the power sector and employ the difference-in-differences method to evaluate the impact of China’s ETS on CO2 emissions in the power sector and its dynamic effect. On this basis, we explore the mechanisms by which the ETS facilitates the decarbonization of the power sector, as well as its heterogeneous impacts. We find that the ETS has significantly promoted the decarbonization of the power sector, reducing its CO2 emissions in the pilot provinces by approximately 24.53 Mt compared to the non-pilot provinces. The decarbonization effect of the ETS was continuous and strengthened. In addition, the ETS promotes decarbonization of the power sector through technological advances in power generation and electricity utilization. Finally, the ETS’s decarbonization effect on the power sector is influenced by the heterogeneity of regions, carbon prices and quota allocation methods. Our findings have beneficial implications for the construction of carbon markets in the context of carbon neutralisation and carbon peaking.

Fertility rate, fertility policy, and climate policy: A case study in China

Although population growth plays a vital role in driving anthropogenic climate change, fertility impact on achieving mitigation target is usually overlooked in literature. This paper attempts to narrow the research gap by employing a Computable General Equilibrium (CGE) model to analyze the interrelations among fertility rate, fertility policy, and climate policy in China. The model results show that fertility rate negatively correlates with GDP and emissions because higher fertility induces more labor for childcare and thus crowds out labor for work. The three-child policy raises fertility intention; it does not unidirectionally influence the effects of the emission trading scheme (ETS) on employment and GDP, but it increases ETS emission abatement. Technological progress increases GDP and decreases emissions; the three-child policy strengthens technological impact on GDP but weakens technological impact on emissions. Hence, technological progress benefits emission mitigation; the three-child policy enhances economic benefits but impairs emission abatement of technological progress.

Do creditors price climate transition risks? A natural experiment based on China's carbon emission trading scheme

The pursuit of carbon neutrality by China signifies the country's resolute commitment to proactively tackle climate change. However, traditional energy firms, which function as the pillars of the domestic economy, surely face a significant challenge in the form of "decarbonization." In light of climate transition risks, this study employs the difference-in-difference (DID) model to investigate the impact of China's carbon emission trading scheme (ETS) on the debt financing costs of listed high-carbon firms (HCFs). The findings indicate that the significant increase in debt financing costs of HCFs under ETS can be attributed to the "dual vulnerability" that HCFs exhibit, consisting of heightened credit risk and a diminished environmental reputation. Specifically, the implementation of ETS regulations results in elevated operating costs and future cash flow risks for firms, which subsequently escalates credit risk. This is especially true for establishments situated in regions characterized by high carbon emissions and high scores on the Low Carbon Economic Transition Assessment Index. Such data suggests creditors are progressively placing greater emphasis on the reputation of low-carbon environmental practices. Additional study suggests that firms that possess inferior qualification endowments, less external financing capabilities, and weaker risk-diverting capabilities are more susceptible to the effects of ETS and are subjected to more transformation pressure. The findings of this research hold substantial importance in terms of advancing ETS initiatives in a concentrated, phased, and clustered fashion, guaranteeing technological advancements and seamless transitions for HCFs throughout the carbon peak cycle, and eventually bolstering society's climate adaptability as a whole.

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.

The causal effect of carbon emission trading scheme on green TFP: Evidence from the Chinese transportation industry

While industries globally strive to meet the 1.5-degree target set forth in the Paris Agreement, the transport sector, as the largest emitter of carbon, has yet to sufficiently reduce its emissions. This study utilizes panel data spanning from 2007 to 2022 in China and employs a time-varying difference-in-differences (DID) method to examine the causal impact of the carbon emission trading scheme (ETS) on green total factor productivity (GTFP) within the transport industry. Our empirical analysis yields several key findings: First, the implementation of the ETS policy significantly enhances GTFP in the transport sector within pilot areas. Second, decomposition of GTFP indicators reveals that the ETS primarily improves green scale efficiency and fosters green innovation, driven by technological advancements and optimal resource allocation. Third, heterogeneity analysis demonstrates a notably stronger positive effect of the ETS on transport sector GTFP in the eastern region, with insignificant impacts observed in the central and western regions. Through rigorous robustness tests, these conclusions are consistently upheld. In sum, this paper provides robust empirical evidence supporting the efficacy of ETS in reducing emissions and presents valuable policy implications for fostering the green transition of the transport sector.

Firm-level pollution and membership of emission trading schemes

Several firms have joined emission trading schemes in response to the call for corporate climate action. Using a comprehensive international data set on corporate membership of emission trading schemes (ETSs), we find that members of the scheme emit more CO2 than non-participants. This result also holds when exploring the corporate discharge of sulphur and volatile organic compounds (VOCs). The magnitude of this relationship persists even in the long run showing little evidence of a reduction from the firms in polluting the environment. We also find that firms that select to exit the scheme continue to pollute at a higher rate in the following years. Firms that enter the scheme for the first time increase their pollution in the following years. Although we identify significant differences at a country and continental level on the effectiveness of ETSs, our results raise some concerns about ETSs’ role.

Does Carbon Trading Lead to Green Technology Innovation: Recent Evidence From Chinese Companies in Resource-Based Industries

The carbon emission trading scheme (ETS) is critical to China's ability to reach the established carbon dioxide (CO₂) emissions reduction goal by 2030 and carbon neutrality by 2060. To determine whether the pilot ETS policy promulgated in China in 2011 has induced green technological innovation, we conducted a multidimensional empirical test to assess the financial and green patent licensing data of Chinese A-share (publicly listed) enterprises in Shanghai and Shenzhen from 2004 to 2019. Using a difference-in-difference model with robustness checks, we did not find that the pilot ETS has had green innovation effects on entire industries or all manufacturing. However, we did identify significant green innovation improvements in some resource-based industrial enterprises, and the promotion effect led to more green utility models than green invention patents. Furthermore, the policy's greatest green-innovation effects are reflected primarily in new patents/utility models for low-carbon, energy-saving, and alternative energy technologies, particularly among large and nonstate enterprises. The impact mechanism tests indicate that the pilot policy encourages green innovation primarily through four policy instruments: increasing benefit income for resource-based industrial enterprises, reducing financial constraints, granting subsidies, and increasing incentives for enterprise R&D. Therefore, this article not only confirms the effectiveness of carbon emission trading market policy, but also provides scientific guidance for the realization of green technology innovation.

What role do emission trading schemes, energy innovation, and technology transfer play in sustainable recovery? A perspective from BRICS economies

To ensure long-run sustainability, it is imperative to achieve the goal of zero-carbon emissions without compromising economic growth. Identifying whether BRICS economies, which are an attractive set of countries due to their rapid economic growth and high emissions, can shift towards sustainability with the support of policy measures, is a question which needs to be addressed. This article investigates the impact of emission trading schemes, energy innovation, technology transfer, population growth, and inflation on the economic performance of BRICS economies (2001–2020). The outcomes of the CS-ARDL and PMG estimators reveal that carbon taxes, carbon finance, energy innovation, technology transfer, population growth, and inflation have positive effects on economic performance. In light of the evidence, policy insights are recommended to achieve a win–win situation for economic and environmental performance.