Emissions Trading System Research Articles

Does Pricing Carbon Mitigate Climate Change? Firm-Level Evidence from the European Union Emissions Trading System

Abstract In theory, market-based regulatory instruments correct market failures at least cost. However, evidence on their efficacy remains scarce. Using administrative data, we estimate that, on average, the European Union Emissions Trading System (EU ETS)—the world’s first and largest market-based climate policy—induced regulated manufacturing firms to reduce carbon dioxide emissions by 14–16% with no detectable contractions in economic activity. We find no evidence of outsourcing to unregulated firms or markets; instead, firms made targeted investments, reducing the emissions intensity of production. These results indicate that the EU ETS induced global emissions reductions, a necessary and sufficient condition for mitigating climate change. We show that the absence of any negative economic effects can be rationalized in a model where pricing the externality induces firms to make fixed-cost investments in energy-saving capital that reduce marginal variable costs.

Does the emissions trading system promote regional green innovation? – Evidence from Chinese prefecture-level cities

ABSTRACT The previous economic development model based on scale expansion has caused serious environmental pollution and resource constraints. Therefore, the development of green innovation with clean production and environmental protection as the core is particularly important. The emissions trading system (ETS) has been introduced in the process of market-oriented environmental regulation, and its impact on green innovation is of great significance. This paper examines the impact of the ETS on regional green innovation and its mechanism of action using the PSM-DID method based on data from 154 prefecture-level cities in China. The study finds that the ETS has a positive effect on improving green innovation, and this effect gradually increases over time. The impact mechanism test shows that the ETS promotes green innovation by increasing regional innovation R&D investment, and the regional business environment plays a positive role in this process. Heterogeneity tests show that the effects of ETS are more pronounced in more polluted regions and in regions with stricter environmental regulations. This paper provides theoretical support for the implementation of ETS in China and some developing countries, and empirical evidence and policy implications for the green innovation effect of ETS.

The Impact of Carbon Emissions Trading System on Regional Green Innovation: A Perspective of Foreign Investment Agglomeration

The Impact of Carbon Emissions Trading System on Regional Green Innovation: A Perspective of Foreign Investment Agglomeration

The Effect of China’s Carbon Emissions Trading System on the Power Sector’s CO<sub>2</sub> Emission Reduction Based on the "West-East Power Transmission" Project

The Effect of China’s Carbon Emissions Trading System on the Power Sector’s CO<sub>2</sub> Emission Reduction Based on the "West-East Power Transmission" Project

Grappling with the trade-offs of carbon emission trading and green certificate: Achieving carbon neutrality in China

Although our knowledge of national carbon emission trading system and green certificate trading system are powerful incentive instruments that can deliver on increasingly ambitious climate targets in China, there remains an uncertainty of systems' structural reforms. This study builds on and extends a well-established dynamic computable general equilibrium (CGE) model to incorporate carbon trading system and green certificate trading system into the modeling framework, simulating a diverse of system development pathways further allows an exploration of the many possible policy effect. Then, using total factor productivity as a comprehensive indicator to asses policy effectiveness, the evolutionary trend of comprehensive effects under different paths are separately evaluated to discover the reforms’ optimal range. Our work offers main results: First, these instruments provide a price signal. The introduction of a carbon allowance auction drive up carbon prices, while the implementation of a green certificate punishment and the expansion of the trading scope promote an increase in green certificate prices. Second, all policy scenarios that help reduce carbon emission intensity and optimize the power supply structure. However, in achieving the net-zero goal, the green certificate policy incurs more economic costs than the carbon trading policy. Indeed, the combination of multiple policy tools alleviates the decline of social welfare levels. Third, synergism design among policy tools: the focus should be on carbon trading policy from 2021 to 2030, green certificate trading policy from 2030 to 2050, and strengthened policy from 2050 to 2060. Reform measures within policies may need to be introduced in a timely manner. This study offers specific insights and tailored policy proposals to support policymakers in balancing environmental goals with economic and social needs in light of the aforementioned findings.

An Overview of Waste-to-Energy Incineration Integrated with Carbon Capture Utilization or Storage Retrofit Application

This paper provides an overview of the integration of Carbon Capture, Utilization, or Storage (CCUS) technologies with Waste-to-Energy (WtE) incineration plants in retrofit applications. It explains the operational principles of WtE incineration, including the generation of both biogenic and fossil CO2 emissions and the potential for CCUS technologies to mitigate these emissions. In addition, the paper covers the regulatory framework influencing the adoption of such technologies and highlights the recent Directive 2023/959 for the inclusion of WtE incinerators in the European Union Emissions Trading System (EU ETS) by 2028. This measure could provide a significant impulse for the integration of CCUS in WtE incineration plants. Moreover, it discusses the use of CO2 captured, which could be used in Carbon Capture and Storage (CCS) and Carbon Capture and Utilization (CCU), and offers a comparison of the CCUS projects that have already been implemented worldwide, with a focus on the Netherlands and Italy. It illustrates the Netherlands’ advantageous position due to its developed CO2 market and early CCUS adoption, compared to Italy’s emerging market and initial storage solutions.

Study on the Improvement of China's Carbon Emission Trading System under the Goal of "Double Carbon".

September 2020, China announced to the world that it would achieve carbon peak by 2030 and carbon neutrality by 2060, and since then, China has formally stepped into the "dual-carbon" era. Against the background of the "dual-carbon" goal, carbon emissions trading is facing major adjustments in system functions, development goals, development stages, implementation levels, trading rules, scarcity creation, and safeguard mechanisms, as well as major opportunities for market-based development. In this regard, China not only needs to reform and improve the carbon trading system on the basis of the original immature carbon trading system, but also needs to cover more subjects to participate in the carbon emissions trading market, to achieve emission reduction, pollution reduction and synergistic governance through the market mechanism, and to grasp the key opportunity to transform the carbon market from a "policy market" to a "commodity market". The carbon market from "policy market" to "commodity market" to grasp the key opportunity to change, to achieve carbon trading energy saving and emission reduction benefits significantly enhance.

Alternative climate metrics to the Global Warming Potential are more suitable for assessing aviation non-CO2 effects

A growing body of research has highlighted the major contribution of aviation non-CO2 emissions and effects to anthropogenic climate change. Regulation of these emissions, for example in the EU Emissions Trading System, requires the use of a climate metric. However, choosing a suitable climate metric is challenging due to the high uncertainties of aviation non-CO2 climate impacts, their variability in atmospheric lifetimes and their dependence on emission location and altitude. Here we use AirClim to explore alternatives to the conventional Global Warming Potential (GWP) by analysing the neutrality, temporal stability, compatibility and simplicity of existing climate metrics and perform a trade-off. We find that using the temperature-based Average Temperature Response (ATR) or using an Efficacy-weighted GWP (EGWP) would enable a more accurate assessment of existing as well as future aircraft powered by novel aviation fuels.

Carbon capture and utilization under EU law: impermanent storage of CO2 in products and pre-combustion carbon capture

Abstract The evolving regulatory landscape within the European Union demonstrates a transition from prioritizing carbon capture and storage over carbon capture and utilization towards a more equitable treatment of both approaches in relevant legislation and policy frameworks. Nevertheless, the ‘permanence’ criterion of carbon dioxide in the products remains an ongoing challenge. Within the current European legal framework, harnessing the regulatory incentives depends on how long carbon dioxide remains in carbon capture and utilization products. The study elucidates the evolving regulatory landscape surrounding carbon capture and utilization by examining recent legislative initiatives and amendments to key directives such as the Emissions Trading System Directive and the Renewable Energy Directive. Furthermore, it explores the implications of the European Union Net-zero Industry Act and the Carbon Removal Certification Framework. In addition, this article examines and explains the need for expanding the scope of carbon capture and utilization and storage by incorporating pre-combustion carbon capture through methane splitting into the definition.

Analysis of the relationship between carbon pricing and green innovation: A multidimensional study in 35 countries

Increased greenhouse gas emissions are the main cause of global warming, leading to effects such as rising sea levels, extreme weather events, and unprecedented species extinction. The 2015 Paris Agreement, with the participation of 195 countries, aimed to reduce CO₂e emissions and limit the increase in global temperature to 2 °C compared to pre-industrial levels. Academia, the World Bank, and the Organization for Economic Co-operation and Development emphasize CO₂e pricing as a crucial initiative to mitigate global warming and promote a low-carbon economy. This can be achieved through taxes on fossil fuel emissions or a carbon credit auction system such as the Emissions Trading System (ETS). However, complexity arises when considering cross-border pricing limitations and the concern that companies may relocate to countries with less stringent environmental regulations. Therefore, the objective of this study is to investigate the correlations between the 35 countries that have CO₂e pricing practices. Data and methods involved statistical analysis of three exogenous variables using SPSS software: a) countries' position in the Environmental Performance Index (EPI) ranking; b) historical number of green patents registered in these countries; and c) the number of scientific articles published with decarbonization as a central topic. The results suggest a virtuous cycle in these countries, where CO₂e pricing leads to an increase in green articles and patents, contributing to their improved position in the global EPI ranking. The main implications of this study are that achieving the objectives of the Paris Agreement will require a collective effort from all countries, and therefore, good practices must be encouraged and replicated. Meeting decarbonization targets necessitates structural changes, such as those in the current energy model. This virtuous cycle should be extended to other countries that do not yet practice CO₂e pricing to advance the goal of mitigating global warming and transitioning to a low-carbon economy.

Nexus between climate change and mitigation approaches for sustainable development: a bibliometric review

Purpose Today’s world is struggling with the hardship of climate change that has drastically disturbed human life, wildlife and the earth’s biological system. This study aims to show how implementing climate change mitigation strategies and environmental protection measures can ensure sustainable development through collaborative efforts between governmental authorities and the nation’s populace. Design/methodology/approach An extensive literature review of studies is conducted from across the world concentrating on holistic, sustainable development, enabling a showcase of various conferences, action plans initiated and resolutions passed. VOSviewer software is used to quantify the results of bibliometric analysis and cluster analysis. A total of 260 research studies released between 1993 and 2022 on the Scopus platform are quantified in terms of topmost publications, collaborations among authors, citations index and year-wise publication. The search string has keywords including “climate change,” “sustainable development” and “environment protection.” Findings The study results revealed a steep increase in research publications in the last three years, from 2017 to 2021, which serves as the basis of the emergence of high-impact articles. The most cited document in this context throws light on assessing vulnerability to climatic risk and building adaptive capacity. It also draws attention to voluntary carbon markets’ rationale while condemning emission trading systems for climate change due to structural flaws, negative consequences and questionable emission-cutting effectiveness. Low energy demand, zero energy buildings and shared socioeconomic pathways should be implemented as strategies for sustainable development. Practical implications This study provides a significant opportunity to construct a valuable addition to mitigate climate change. Also, it shows a positive and significant correlation between mitigation and adaptation policies by analyzing publication efforts worldwide considering local climate risks and national adaptation mandates. Originality/value The originality of this study lies in its comprehensive approach, combining literature review, bibliometric analysis and cluster analysis to provide insights into current research trends, challenges and potential strategies for addressing climate change and promoting sustainable development. The study’s emphasis on the correlation between mitigation and adaptation policies adds practical significance to its findings.

Carbon emissions trading in ground transportation: Status quo, policy analysis, and outlook

Ground transportation, which includes the road and rail sectors, is a major source of greenhouse gas (GHG) emissions. An emissions trading system (ETS) is one of the environmental policies for controlling carbon emissions from fossil fuel combustion during transport activities. To investigate the status of existing ETS interventions on ground transportation emissions, a comprehensive literature review is conducted, including policy evaluation and comparison, scheme optimization and design, and specific transport behavior interventions. The results show that existing upstream policies are insufficient in stringency and effectiveness, while policy implementation for downstream interventions remains limited. To address these shortcomings, this study proposes a downstream ground transportation emissions trading system (GTETS), incorporating the Internet of Things and blockchain technology. As well as road and rail transportation emissions, the system includes the emissions-related activities of individuals and transportation companies, and its Web3-based technologies provide effective and efficient monitoring, reporting, and verification.

Renewable hydrogen production through electrolysis: An analysis of the cost gap for its economic competitiveness in Italy

With global policies targeting greenhouse gas emission reduction, renewable hydrogen produced by water electrolysis powered with renewable electricity appears a promising alternative to fossil fuels. However, still high capital costs, reliance on intermittent renewable electricity sources, and high electricity cost hinder the economic viability of electrolyzers. This work develops a comprehensive analysis for assessing the need of an incentive to make renewable hydrogen economically viable, identifying different archetypes of electrolysis plant representative of a wide range of applications. A techno-economic optimization model is set up that minimize the average hydrogen production cost and compute the cost gap that makes hydrogen economically competitive with the fossil alternative, defining the optimal size and operation of the plant components while satisfying the hydrogen demand. The model is applied to the Italian case study. Sensitivity analyses investigate the impact of economy of scales, renewable electricity availability and introduction of the emission trading system. Cost gaps ranging between 8.1 €/kg and 29.9 €/kg highlights the need of an incentive to allow the deployment of this technology, thus meeting the hydrogen penetration targets.

COMPARATIVE EVALUATION OF EMISSIONS TRADING SYSTEMS AND CARBON TAXES: IMPLEMENTATIONS IN CLIMATE CHANGE MITIGATION THROUGH CARBON PRICING

Climate change, driven by human activities, results in global warming, sea level rise, extreme weather, biodiversity loss, and ecosystem damage. To combat these issues, carbon pricing is being utilized. This policy strategy assigns costs to greenhouse gas (GHG) emissions, considering their negative impact on society and the environment, thus encouraging reduction of emissions. Two main methods of implementing carbon pricing are emissions trading systems (ETS), where the carbon price is market-determined, and carbon tax, where the carbon price is pre-established. This study compares carbon taxes and ETSs as regulatory measures for mitigating climate change. Focusing on aspects of policy design and implementation— efficiency, political durability, policy consistency, flexibility and adaptability, predictability, and environmental certainty—the main argument of the study hinges on the distinct nature of price formation in these mechanisms - carbon taxes define prices directly, whereas ETSs rely on market dynamics for price determination. This fundamental divergence significantly shapes the operational dynamics of climate mitigation policies. The study highlights the unique strengths and limitations inherent in ETSs and carbon taxes, underscoring the necessity of viewing these mechanisms not as alternatives but as synergistic strategies for a policy design in combating climate change.

The substantial impacts of carbon capture and storage technology policies on climate change mitigation pathways in China

Carbon capture and storage (CCS) technology, considered as a pivotal tool in mitigating climate change within the fossil energy system, particularly in China, has experienced slower development than expected. The exploration of direct incentive policies to facilitate its growth remains relatively underdeveloped. This study developed a hybrid dynamic computable general equilibrium (CGE) model to simulate the substantial impacts of CCS incentive policies on China within the context of carbon neutrality target. Two potential incentive policies, carbon emission trading system (ETS) and 45Q tax credit, were simulated, with different sectoral coverage. The results indicate that CCS technologies can reduce carbon emissions by 960 ∼ 1,604 MtCO2 annually by 2060 through the strategic implementation of these incentive policies. The 45Q tax credit demonstrates its effectiveness in promoting early-stage research and development (R&D) and demonstration of CCS, while the ETS policy facilitates the commercial development of CCS in the later stage of development. By 2060, the implementation of CCS incentive policies could potentially result in 7.7 ∼ 17.4 % reduction in China’s primary energy consumption, 71.2 ∼ 82.7 % decrease in the carbon price of ETS and 5.64 ∼ 6.59 % increase in the GDP compared with the no-policy scenario. In addition, the sectoral output in various sectors and the welfare of urban and rural households also increase. This paper provides an important reference for the realization of China’s carbon neutrality goal and the model framework can be applied to other countries.

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.

Cost, market, and policy constraints on mitigating climate change through afforestation in China

Afforestation is a promising nature-based climate solution for mitigating climate change, but it is subject to a complex web of biophysical, cost-benefit, market, and policy processes. Although its biophysical feasibility has been established, the cost, market, and policy constraints that affect climate change mitigation through afforestation are still unclear. Here, we estimate such cost, market, and policy constraints on the basis of biophysical feasibility. Our findings reveal that implementation costs are a more relevant constraint than opportunity costs on mitigating climate change through afforestation. The China Certified Emission Reduction market currently provides only a 0.308 % incentive for climate change mitigation through afforestation, due to market access constraints. The current market prices of China Certified Emission Reduction, China Carbon Emissions Trading Exchange, and Nature Based Carbon Offset in Voluntary Carbon Market constrain 88.15 %, 87.95 %, and 85.75 % of CO2 removal actions through afforestation, compared to the carbon price scenario (US$62.97 tCO2-1) of the EU Emissions Trading System. Moreover, land policy under the scenarios of prohibiting conversion of cultivated land to forest and forest restoration in degraded areas exhibit 8.87–29.59 % and 65.16–74.10 % constraints, respectively, on mitigating climate change through afforestation compared to land-use freedom conversion scenarios from 2020 to 2060. Thus, enhancing the incentive price of CO2 removal, addressing the market access barrier, strengthening cooperation between global carbon markets, and exploring carbon–neutral and food multi-oriented land policies can be valuable sources of mitigation efforts over the next 40 years.

Trade flows, carbon leakage, and the EU Emissions Trading System

The EU Emission Trading System (EU ETS) has been shown to have reduced emissions in the participating countries and industries since its adoption in 2005. However, there is less evidence on the shifting of production outside EU to avoid emission controls. We study this so-called carbon leakage with gravity analysis of international trade flows and carbon intensities of trade. We utilize the gravity model on a sectoral level and study its implications empirically. Our findings with new OECD data indicate that some carbon leakage has in fact occurred due to the EU ETS, resulting in higher carbon content of imports to the EU. At the same time, we show that the EU ETS has induced lower carbon content of exports from the EU. In further analysis, we show that the carbon leakage we find has caused a moderate increase in total carbon content embodied in the EU’s trade, despite the decreases in exported carbon.

The effect of carbon regulation initiatives on corporate ESG performance in real estate sector: International evidence

This study contributes to the existing literature by examining how carbon regulation initiatives influence corporations' ESG actions in the real estate sector, with a special focus on Environmental (E) performance. Specifically, it investigates if stringent carbon regulations like emissions trading systems (ETS) enhance corporates' ESG performance by analyzing data of listed real estate across 37 countries rated by MSCI. Our findings indicate that implementing ETS leads to heightened environmental responsibility in the real estate sector. This supports North's (1990) institutional theory, highlighting the impact of regulations on organizational behavior and business strategies. Our channel analysis suggests that listed real estate leverages ETS-driven regulations to participate in green building initiatives. However, the study does not find comparable effects on carbon taxes. This research highlights the pivotal role of carbon regulations in shaping sustainable practices in the real estate sector.

The Port Sector in Italy: Its Keystones for Energy-Efficient Growth

Italy has been defined as the “logistics platform” of the Mediterranean Sea. The Italian port system, with 11.6 million TEUs handled and 61.4 million passengers in 2022 (Assoporti data January–December 2022), is the key to fulfilling this title through adequate levels of reliability, safety, and sustainability. This contribution addresses port logistics and shipping, focusing on primary issues related to the energy sector with a specific focus on what can be observed in the Italian context. Specifically, the decarbonization of the maritime sector and related infrastructural problems (e.g., cold ironing or alternative fuels, where the uncertainty about resource availability and related costs do not allow for easy strategic planning by both the ship owner and the port authority), as well as policies such as the Emission Trading System (ETS), will be analyzed. All these issues, hereafter addressed with a systematic critical review of the existing literature and other relevant sources, could represent the driving force of the growth of the national port sector toward its competitiveness at a global scale. The review was performed through a wide search and analysis of studies published in well-known online research databases (Scopus, Web of Science, IEEE Xplore, ScienceDirect), sector studies, or specialized technical magazines. The review focuses on the results of each analyzed contribution rather than on the analysis method adopted with the final aim to identify useful hints and innovative ideas for further studies on the topic.