Emissions Trading Scheme Research Articles

Do the Compliance Requirements under China’s Greenhouse Gas Emissions Trading Schemes Have Adequate Legal Certainty?

Do the Compliance Requirements under China’s Greenhouse Gas Emissions Trading Schemes Have Adequate Legal Certainty?

Unveiling the driving patterns of carbon prices through an explainable machine learning framework: Evidence from Chinese emission trading schemes

Effectively modeling carbon prices while maintaining interpretability is essential, given the potential risks associated with unexpected price fluctuations. To this end, this study proposes an explainable machine learning (XML) framework to predict and explain carbon prices in China’s three representative carbon markets: Shenzhen, Hubei, and Beijing. Leveraging the strengths of tree-based machine learning models and Tree SHAP algorithms, we unveil global and local explanations in the driving patterns of carbon prices. Our findings indicate that the distribution of local explanatory effects exhibits asymmetric and long-tailed characteristics. Notably, the top global drivers in Shenzhen, Hubei, and Beijing are the photovoltaic price index, coal prices, and the industrial added value of electricity sectors, respectively. Furthermore, we uncover the nonlinear impacts of key drivers on individual carbon price predictions, and identify three key interaction patterns through the calculation of SHAP interaction values. Lastly, we evaluate the explainable performance of various XML benchmarks to validate the superiority of our XML framework, as well as demonstrate its economic significance via a switching trading strategy. Our research provides a reference for mitigating large price fluctuations in local carbon price samples, thereby promoting the stability of carbon markets.

THE EUROPEAN EMISSIONS TRADING SCHEMES (EU ETS): SOME LEGAL PERSPECTIVES OF MARKET-BASED MECHANISMS

In this article, the implementation of the Paris Agreement by the European Union, the current stage in the development of the climate policy of the European community in the fight against global warming in accordance with the European Green Deal, which was based on the strategy of achieving climate neutrality by 2030 by reducing greenhouse gas emissions by at least 55% to 2030 comparing with the level of 1990, are analyzed. The author researches some legal aspects of the implementation of the "Fit for 55" package of sectoral initiatives to the EU legislation, in particular the current phase of the EU Emission Trading Schemes (EU ETS), market mechanisms of interstate trading of certificates on emissions. The author draws special attention to the prospects of introducing EU’s Carbon Border Adjustment Mechanism (CBAM) with the aim of determining a fair price for emissions during carbon-intensive production of goods that are imported into the EU, as well as stimulating cleaner industrial production in non-EU countries, and to related potential challenges and prospects for the development of climate diplomacy in order to achieve agreed compromises between the participants of the Paris Agreement in combating with global warming.

Carbon emission trading scheme and corporate financialization: Evidence from China

To achieve the carbon goals, the Chinese government initially implemented the carbon ETS in 2013 in 7 pilot provinces and cities. Using the firm-level financial and management data of the A-share listed companies in the 30 provinces of mainland China from 2008 to 2020, this paper examines the ETS impact on corporate financialization by constructing a DID model. The result supports the “crowd-out” effect that the implementation of ETS decreases corporate financialization and this negative impact is weaker on the state-owned firms, located in the eastern region of China, and are not in the manufacturing industry. These findings imply that other than the original target to reduce carbon emissions, the ETS, by its market-based nature, is effective in reducing the risk of over-financialization.

Evaluation of emission trading scheme effectiveness in freight transportation

Evaluation of emission trading scheme effectiveness in freight transportation

Market potential and the industrial sectors inclusion sequence in China's national carbon emission trading: From the perspective of maximizing gains

The carbon emission trading scheme (CETS) has been gradually introduced in China to control carbon emissions and boost economic and social development. The existing literature has evaluated the market potential of pilot CETSs or a certain industry, yet no study has focused on the industrial sectors to be covered in the national CETS to analyze trading flexibility and the sector inclusion sequence. This study presents an analytical framework for estimating market potential (i.e., potential gains and carbon emission reduction potential) and industrial sector inclusion sequences for China's national CETS using by-production models. Three simulation scenarios (i.e., no-trading scenario, power sector trading scenario, and multiple-industry trading scenario) and two trading modes (i.e., contemporary and intertemporal trading mode) are simultaneously considered. The novel evidences are: (i) There would be 39.93% (27.7 trillion CNY), 65.26% (273.0 trillion CNY) and 159.42% (666.7 trillion CNY) national aggregated potential gains of CETS in intertemporal power sector trading scenario, contemporary multiple-industry trading scenario and intertemporal multiple-industry trading scenario, and they would help save 3.60%, 5.18% and 6.05% of CO2 emissions reduction, respectively. (ii) CO2 emission permits would transfer from nonmetal minerals, ferrous metals, and electricity, to paper making, non-ferrous metals, petrochemicals, and chemicals under the intertemporal multiple-industry trading simulation. (iii) Based on the principle of potential gain maximization, it is recommended that the sector of smelting and processing of non-ferrous metals should to be included as the next sector in national CETS. The results show that national CETS has great market potential for achieving China's joint carbon control and economic growth goals.

The road to carbon trading in Malaysia: Unpacking knowledge and experience through scoping review and in-depth interviews

The emission trading scheme (ETS) is arguably one of the most effective approaches for encouraging industries to transition to a low-carbon economy and, as a result, assisting nations in meeting their goals under the United Nations Framework Convention on Climate Change to mitigate the challenge of climate change. ETS is gaining popularity as more governments throughout the world contemplate implementing it, particularly in developing countries. Much of the existing research has concentrated on debates concerning ETS operations in developed nations. This study is to give a discourse of the success criteria for ETS implementation that have been identified in the literature and then cross-referenced in the context of Malaysia. For this, the research used an integrated approach of scoping review of existing literature and in-depth interviews with Malaysian stakeholders. Using Narassimhan et al. (2018)’s ETS assessment framework, the scoping review identified five major attributes that lead to successful ETS implementation in a global context that are environmental effectiveness, economic efficiency, market management, stakeholder engagement, and revenue management. In-depth interviews with several groups of discovered stakeholder engagement as an essential attribute that would play a critical role in advancing ETS implementation in Malaysia. The study concludes by proposing a complete strategy based on empirical information and first-hand narratives, providing useful insights for politicians, industry players, and environmental activists. The recommendation is especially important as Malaysia strives to improve its commitment to sustainable and responsible development in light of the challenges posed by climate change.

How do carbon emissions trading impact the financialization of non-financial companies? Evidence from a quasi-natural experiment in China.

This study examines whether and how carbon trading policy impacts the financialization of non-financial firms, using China emission trading scheme as a quasi-natural experiment. We find that the carbon trading policy exerts a substantial and enduring inhibitory effect on corporate financialization. Our findings are robust to possible result bias and more precise control group. Additionally, we explore potential channels through which carbon trading policy can affect financialization, and find that it curbs financialization by reducing financing constraints. Finally, we demonstrate that the relationship between carbon trading policy and financialization of non-financial companies is moderated by company's ownership, region, and industry competition.

Did carbon emission trading scheme improve energy use in China? An integrated approach based on SCM and threshold regression.

The analysis of energy use not only sheds light on lightening the increasing pressures from energy systems but also improves the flexibility and reliability of power systems. As the highest carbon emission country in the world, detailed evaluation of China's carbon emission trading scheme (ETS) on the energy use is sensitive to energy sectors and highlights the importance of energy utilization in current society. Yet, because of the presence of a possible discontinuity caused by policy implementation, this study uses synthetic control method (SCM) to confirm whether there is a cutoff for energy use after the ETS implementation. Furthermore, threshold regression model is integrated to estimate the causal relationship when there is a discontinuity. SCM is used to verify which has caused the discontinuity for threshold regression model, and threshold regression model is used to quantify and estimate the causal relationship which SCM cannot evaluate. Through the data analysis, it is found that ETS makes effect on energy use deduction in most of pilot ETS regions while the effect is affected by economic development, population, industry, and research. Some suggestions on how to reduce energy use conclude this paper.

Dynamic spillovers between the carbon, stock, and energy markets: A New Zealand case

The Emission Trading Scheme (ETS) is an essential instrument tightly interconnected with the stock and energy markets. This study innovatively incorporates the ETS, stock, and energy markets into an integrated framework to model the return and volatility spillovers. We utilize a dynamic Time-Varying AutoRegressive procedure grounded in both the temporal and frequency domains. Our findings certify time-varying effects in both return and volatility spillovers. Remarkably, extreme events such as the COVID-19 pandemic and New Zealand's ETS-led policies have contributed substantially to these spillovers. Specifically, for return spillovers, the price movements of the stock and the crude oil markets are distinctly influenced by the ETS and electricity markets. On the other hand, volatility spillovers in stock and energy markets are predominantly dominated by the ETS. Furthermore, return and volatility spillovers exhibit substantial heterogeneity across different frequencies, with long-term effects making up the most considerable portion of cross-market spillovers. These findings help gain a deeper understanding of dynamic feedback effects and offer valuable implications for policymakers and market participants.

Impact of introducing Chinese certified emission reduction scheme to the carbon market: Promoting renewable energy

The China Certified Emission Reduction scheme (CCER) and the Cap-and-Trade (CaT) mechanisms jointly constitute the Emission Trading Scheme (ETS), which is expected to have a profound impact on China's social and economic decarbonization. However, previous studies have primarily focused on the impact of the CaT mechanism, neglecting the fact that CCERs serve as a carbon offset trading mechanism. This paper focuses on the impact of the CCER mechanism on China's energy economy and environment by constructing a recursive dynamic computable general equilibrium model that couples CaT and CCER mechanisms. Introducing the CCER mechanism based on the CAT mechanism leads to increased output and reduced prices in renewable energy sectors, cascading positive effects across various energy-utilizing sectors to counter the decline in Gross Domestic Product (GDP) and residential welfare. The finding suggests that China's unique CCER mechanism is poised to play a more important role in promoting renewable energy to mitigate global warming, given its potential to transform the structure of energy production and consumption. Finally, targeted policy recommendations are proposed for implementing the CCER mechanism.

Unlocking the double-dividend: Evaluating the impact of SO₂ emissions trading scheme on firm's environmental and economic performance

The optimal design of environmental instruments demands a balance between environmental enhancement and economic growth. Utilizing microdata from the China Environmental Statistics Database and the China Industrial Firm Database, this study employs the difference-in-differences (DD) methodology to explore the dual effects of the SO₂ Emissions Trading Scheme (ETS) on the environmental and economic performance of micro-firms. The findings suggest that: (1) The SO₂ ETS not only induces emission reduction effects among firms in pilot areas but also improves their industrial added value. (2) The SO₂ ETS exhibits heterogeneous impacts across firms of diverse ownership, export status, and size. (3) While the SO₂ ETS prompts firms to advance technologically, boosting desulfurization capacities and subsequently enhancing total factor productivity, it also inadvertently results in companies offsetting some environmental compliance costs by curtailing employee wages.

Evolutionary game analysis of prefabricated buildings adoption under carbon emission trading scheme

Prefabricated buildings (PBs) have attracted significant attention in the global construction field due to their remarkable environmental and social benefits. How to internalize the carbon emission reduction benefits brought by PBs into economic benefits, and then transform the PB promotion from government departments or state-owned enterprises to the whole market is an urgent problem to be solved. To find a market-oriented tool for internalizing the carbon emission reduction benefits, and to explore the impact of the current prevailing carbon emission trading scheme (ETS) on the construction industry, this study establishes a tripartite evolutionary game model for PB adoption and simulates the dynamic strategy evolution of the government and heterogeneous developers through numerical simulation. Findings indicate that low-carbon market demand, low-carbon synergy and carbon price have a positive impact on PB adoption. Meanwhile, it is recommended to include the construction industry in the ETS when carbon prices reach 110 RMB/t. Under the ETS, while the government could eliminate subsidies for PBs to alleviate financial pressure, the behavior of developers participating in the ETS needs to be monitored. Research findings provide insights for developers to participate in carbon trading markets and for governments to develop carbon trading mechanisms applicable to PBs.

How does carbon emission trading scheme affect enterprise market value? A roadmap towards natural resources sustainability

China has committed to establishing a unified national carbon emissions market to achieve carbon reduction goals. The Carbon Emission Trading Scheme (CETS) internalizes emission reduction costs, which may affect enterprise market value (EMV), but this has seldom received attention. Therefore, based on A-share listed enterprises data from 2009 to 2019, this study not only focuses on investigating the direct and heterogeneous impact of CETS on EMV but also identifies the effective market mechanism design by constructing a unified research framework including carbon emission quota allocation schemes, penalty mechanisms, and EMV performance. The empirical results are as follows: (1) The CETS can significantly enhance the EMV of covered enterprises, indicating that China's CETS supports the Porter hypothesis. Compared with state-owned and small enterprises, the CETS has a more significant effect on promoting the EMV of non-state-owned and large enterprises. (2) The mixed carbon quota allocation scheme (the combination of free and auction schemes) is more effective in improving EMV than the pure free quota allocation system. Meanwhile, the mixed penalties combining economic and non-economic measures can effectively encourage CETS-covered enterprises to participate in carbon trading activities, thus enhancing overall EMV. (3) The results of the mediation effect test indicate that the mixed schemes improve EMV by promoting low-carbon technology innovation, and mixed carbon quota allocation schemes have a more significant effect through this channel. These findings have important reference value for improving EMV under the CTEs, achieving the carbon peak and carbon neutrality goals, and promoting sustainable economic development.

Does China’s emission trading scheme promote industry-level green innovation: evidence from Guangdong pilot market

Green innovation has been the crucial and fundamental channel for efficient emission reduction and high-quality realization of the “Dual Carbon” goals. This paper provides novel evidence for the industry-level effect of Emission Trading Scheme (ETS) on green innovation. Specifically, adopting the supply chain Stackelberg model and the multi-period DID model, we demonstrate both theoretically and empirically that the ETS has an overall significant promotion effect on green innovation both in compliance and non-compliance industries. Surprisingly, the promotion effect in non-compliance industries will be stronger, forced by the costs pass-through from up-stream compliance industries. Furthermore, we also find that the carbon price level can amplify the positive effect of the ETS on industry green innovation in the short run, while the price volatility weakens the effect of the ETS in the long run. Our findings shed light on the inherent effects of ETS on green innovation and suggest that policymakers should stabilize the carbon prices so as to encourage green innovation.

Cooperative management of an emission trading system: a private governance and learned auction for a blockchain approach

Although blockchain technology has received a significant amount of cutting-edge research on constructing a novel carbon trade market in theory, there is little research on using blockchain in carbon emission trading schemes (ETS). This study intends to address existing gaps in the literature by creating and simulating an ETS system based on blockchain technology. Using the ciphertext-policy attributed-based encryption algorithm and the Fabric network to build a platform may optimize the amount of data available while maintaining privacy security. Considering the augmentation of information interaction during the auction process brought about by blockchain, the learning behavior of bidding firms is introduced to investigate the impact of blockchain on ETS auction. In particular, implementing smart contracts can provide a swift and automatic settlement. The simulation results of the proposed system demonstrate the following: (1) fine-grained access is possible with a second delay; (2) the average annual compliance levels increase by 2% when bidders’ learning behavior is considered; and (3) the blockchain network can process more than 350 reading operations or 7 writing operations in a second.

The role of the Emission Trading Scheme in the decarbonization of existing district heating systems

ABSTRACT The FitFor55 legislative package sets ambitious targets to make Europe the first climate-neutral continent by 2050. Within it, the EU Emission Trading Scheme is mandatory for energy operators with an installed capacity higher than 20 MW, calculated by considering units with a rated thermal input under 3 MW. The paper highlights the impact of the Emission Trading Scheme on the investment choices made by district heating systems operators, considering both current regulations and the potential extension of the Emission Trading Scheme to encompass lower energy capacities. The analysis concerns the simulation of four revamping scenarios (two fueled by natural gas and two partially by renewables) within an existing district heating system located in Italy. The economic analysis shows that an extension of the Emission Trading Scheme alone is not effective in hindering scenarios based on natural gas production. A reform of the power exchange market is necessary to drive decarbonization and encourage investment in renewable generation plants.

Integration of the international carbon market: A time-varying analysis

Emission Trading Schemes (ETSs) have become vital for meeting global emission reduction targets. They are gaining momentum, as witnessed by increasing market size and improving information mechanisms. Examining key emission markets — European Union, New Zealand, California, and Hubei (China) — from April 2014 to December 2021, a Time-Varying Parameter Vector Autoregressive (TVP-VAR) model is applied to discern the markets' connectedness. In a novel approach to global carbon market research, this study uniquely combines the TVP-VAR with the connectedness approach, overcoming fixed parameters estimation and ensuring precise parameter estimates. The approach sheds light on patterns of total, directional, and net return/volatility spillovers, striving to identify which markets act as transmitters and which are receivers. Linking market spillovers to market characteristics, events, and policies offers insights for investors and policymakers. The total connectedness index of 10–12 % suggests a relatively low level of spillover, when compared to other market integration studies. The dynamic nature of return and volatility spillovers is evident, especially during the energy crisis and Covid-19 outbreak. The EU's ETS consistently acts as a net transmitter, predominantly in return connectedness, while New Zealand's ETS emerges as a major shock receiver in both return and volatility systems. Global climate negotiations and carbon market events have only a minor impact on the level of connectedness, in contrast to energy or financial crises and the Covid-19 outbreak. By highlighting the intricacies of carbon price volatility and market transmissions, the findings equip stakeholders with invaluable, actionable insights.

Impacts of emission trading scheme on technological progress: A case study in China

Despite its significant role in mitigating climate change, technology was usually exogenously treated in evaluating climate policy, particularly emission trading scheme (ETS); such treatment cannot comprehensively reveal how ETS affects technological progress. To narrow this research gap, we attempt to endogenize ETS-induced technological change in this paper. A dynamic recursive Computable General Equilibrium (CGE) model is employed to quantify ETS-induced progress of clean technology (PCT) and efficiency improvement. The Chinese nationwide ETS is taken as a case study. The CGE model results show that PCT negatively affects anthropogenic emissions, while efficiency improvement decreases GDP loss or abatement cost. Simultaneously considering both technological progress increases emission abatement but slightly decreases GDP in the long term. The most interesting finding is that PCT moderates the relationship between efficiency improvement and emission abatement. Hence, PCT is crucial in emission abatement and economic growth under climate policy.

Dependency ratio and emission trading scheme: a case study in China

Dependency ratio and emission trading scheme: a case study in China