Emissions Trading Research Articles

Improving corporate profitability from the inside out with environmental performance: an empirical analysis based on Chinese listed company data

This study uses data from listed companies in China from 2008 to 2021, constructs a comprehensive evaluation of corporate environmental performance from the perspective of internal efficiency and externalities based on the text analysis method, and analyzes the impact and mechanism of environmental performance on profitability. In addition, we find that improving environmental performance can significantly increase profitability, especially if the company tackles pollution at the source. Furthermore, the impact of environmental performance on profitability tends to be driven by external markets. Obtaining environmental certifications, awards, and green patents can provide positive feedback and significantly increase profitability. In addition, the mechanism analysis shows that environmental performance affects firm profitability by improving green technology innovation, reducing financing constraints and increasing operating income. Finally, the results of the heterogeneity analysis show that the profitability-enhancing effect of environmental performance is stronger in non-state-owned firms, in clean industries firms and in regions with carbon emission trading.

The Impact of Carbon Emissions Trading Policy on Regional Economy and Pollution Reductions in Chinese Provinces

Carbon emissions trading policy is an important tool to achieve carbon peaking and carbon neutrality goals. In order to explore the effectiveness of carbon emissions trading policy, this paper adopts the difference-in-differences model to analyze the effects of China’s pilot policy on regional economic development and pollution reductions. The results show that carbon trading policy can significantly promote economic development and reduce total carbon emissions, industrial SO2 emissions and solid wastes production of pilot regions. Further research finds that there is significant regional difference in policy effectiveness, with the policy more effective in western areas. In addition to direct effects, carbon trading policy could exert an indirect effect on carbon emissions, air quality, industrial solid wastes and regional economic development by optimizing energy consumption structures and industrial structures and increasing technological investment. This result verifies the “Porter hypothesis”. China should improve the construction of national carbon trading markets, covering more industries, considering the regional differences and negative spillover effect.

Localization vs globalization of carbon emissions trading system (ETS) rules: how will China’s national ETS rules evolve?

ABSTRACT China’s national carbon emission trading system (C-ETS) is central to its climate action. Previous studies have largely focused on the unique ETS design and/or regulatory details to determine whether the ETS functions successfully. However, less attention has been paid to crucial questions of how China adapts ETS rules to its unique political, legal, economic, and social contexts; and, given China’s climate ambitions, how those rules will develop in future global climate governance. Adding to discussions on how to design the ETS legal infrastructure, this study takes the world’s largest ETS (C-ETS) as an example to discuss the critical question of what rules should be differentiated and what rules should be harmonized (e.g. in alignment with the arguable prototype EU ETS and/or those of strategic partners). First, by examining China’s general ETS institutional framework, its legal evolution, and related legal disputes, this study highlights a ‘central government-promoted model’ underlying China’s ‘localization’ of ETS rules. A Functional Comparative Legal Analysis Framework is proposed to identify China’s key, distinctive, and long-lasting ETS legal features and to examine their collective potential to provide effective, efficient, and just abatement incentives. Further situating the C-ETS in global climate governance, this study provides insights into the potential future development of China’s ETS rules, with policy priorities that vary across stages. Finally, we draw lessons for other jurisdictions and discuss how our analysis might assist in the transnational understanding and potential coordination of different ETS rules.

The Interplay Between China’s Regulated and Voluntary Carbon Markets and Its Influence on Renewable Energy Development—A Literature Review

This is the first review study that focuses on the interplay between China’s regulated and voluntary carbon markets, the Emissions Trading System (ETS), the China Certified Emission Reduction (CCER) scheme, and their combined influence on the development of renewable energy in the country. Through a comparative literature review of 52 peer-reviewed academic papers published between 2009 and 2024, this study aims to elucidate how these market mechanisms interact to drive renewable energy deployment. The findings indicate that both the ETS and the CCER system positively affect China’s renewable energy landscape. The ETS, with its Cap-and-Trade (CaT) mechanism, sets a cap on total emissions and allows for the trading of emission quotas, thereby creating financial incentives for companies to reduce emissions and invest in renewable energy. The CCER scheme complements the ETS by allowing companies to use the CCER scheme for a capped share of their ETS certificates, whereby the lower CCER price diverts investments to where the saved ton of CO2 in China is cheapest, further incentivizing investments in renewable energy. This dual mechanism allows for a more flexible and cost-effective approach to achieving emission reduction targets, thereby fostering an environment conducive to investment in renewable energy. It will stimulate additional investment in renewable energy projects in the long run, particularly in economically underdeveloped regions, contributing to both local economic development and national emission reduction targets.

Assessment of the Impact of China's Carbon Emissions Trading Pilot Policy on the Export Product Quality

To achieve the "dual carbon" goals, China has established a carbon emissions trading market to reduce corporate carbon emissions through market mechanisms. The effect of China's carbon trading pilot programme on export product quality is examined in this study. The analysis employs the quasi-natural experiment provided by this policy, focusing on the quality of exported goods. From 2009 to 2016, panel data from 31 provinces and municipalities created a difference-in-differences (DID) model. This model allows for a comprehensive examination of the impact at the city, industry, and destination country levels. The results show that the quality of exported goods is much improved by the adoption of the carbon trading pilot programme. Additionally, the examination of heterogeneity shows that the influence of the policy is greatest in central cities, with less noticeable effects in the eastern and western areas. The report offers suggestions for advancing carbon trading policies at its conclusion, including the adoption of customized strategies that take into account the distinctive qualities of certain geographic areas. These recommendations are intended to maximise the effectiveness of the carbon trading system and support China's broader environmental and economic objectives.

Projecting short to medium-term effects of carbon emissions trading on Serbia's GDP

This paper presents an approach to assess the short to medium-term effects of the Emissions Trading System (ETS), an economic and climate policy instrument aimed at reducing greenhouse gas emissions, on GDP from the expenditure side. The analysis focuses on Serbia's electricity sector, which relies heavily on lignite-based production dominated by state-owned enterprises. The obtained projections suggest that in the short term, the introduction of an ETS may lead to slower GDP growth compared to official forecasts. However, by 2030, accelerated growth is observed, eventually converging with and even surpassing the projected growth in scenarios characterized by higher investments.

Carbon option pricing and carbon management under uncertain finance theory

Against the backdrop of increasingly severe global climate change issues, more and more countries and regions are adopting carbon emission trading, which is an effective market mechanism. As an important component of the carbon market, American carbon options provide more flexible trading tools to help companies avoid price risks. Therefore, the pricing research of American carbon options is of great significance for promoting the healthy development of the carbon market. Nonetheless, existing pricing methods are all based on probability theory, which need to satisfy the premise that the distribution function is close to the true frequency sufficiently. However, usually such premise is ill-suited in carbon market. To alleviate the predicament of the need for satisfying probability theory’s premise, this work investigates American carbon option pricing under the framework of uncertainty theory, which is another axiomatic mathematical system. For this purpose, uncertain differential equation is adopted to model the price of carbon future, and pricing formulae for American call and put carbon options are derived based on this model. Real data analyses illustrate the proposed method in details. Furthermore, it provides a detailed schema of applying the American carbon option for carbon asset management, which can optimize risk control for carbon consuming enterprises.

Two-Stage Locating and Capacity Optimization Model for the Ultra-High-Voltage DC Receiving End Considering Carbon Emission Trading and Renewable Energy Time-Series Output Reconstruction

With the load center’s continuous expansion and development of the AC power grid’s scale and construction, the recipient grid under the multi-feed DC environment is facing severe challenges of DC commutation failure and bipolar blocking due to the high strength of AC-DC coupling and the low level of system inertia, which brings many complexities and uncertainties to economic scheduling. In addition, the large-scale grid integration of wind power, photovoltaic, and other intermittent energy sources makes the ultra-high-voltage (UHV) DC channel operation state randomized. The deterministic scenario-based timing power simulation is no longer suitable for the current complex and changeable grid operation state. In this paper, we first start with the description and analysis of the uncertainty in renewable energy (RE) sources, such as wind and solar, and reconstruct the time-sequence power model by using the stochastic differential equation model. Then, a carbon emission trading cost (CET) model is constructed based on the CET mechanism, and the two-stage locating and capacity optimization model for the UHV DC receiving end is proposed under the constraint of dispatch safety and stability. Among them, the first stage starts with the objective of maximizing the carrying capacity of the UHV DC receiving end grid; the second stage checks its dynamic safety under the basic and fault modes according to the results of the first stage and corrects the drop point and capacity of the UHV DC line with the objective of achieving safe and stable UHV DC operation at the lowest economic investment. In addition, the two-stage model innovatively proposes UHV DC relative inertia constraints, peak adjustment margin constraints, transient voltage support constraints under commutation failure conditions, and frequency support constraints under a DC blocking state. In addition, to address the problem that the probabilistic constraints of the scheduling model are difficult to solve, the discrete step-size transformation and convolution sequence operation methods are proposed to transform the chance-constrained planning into mixed-integer linear planning for solving. Finally, the proposed model is validated with a UHV DC channel in 2023, and the results confirm the feasibility and effectiveness of the model.

Synergistic Impacts of Carbon Emission Trading Policy and Innovative City Pilot Policy on Urban Land Green Use Efficiency in China

Reducing the conflict between economic expansion and environmental conservation requires green-based innovation policies. The synergistic impacts of these policies on promoting urban land green use efficiency (ULGUE) remain underexplored. Utilizing panel data from 285 prefecture-level cities in China (2006-2020), we apply the super-efficiency slacks-based measure (SBM) to calculate ULGUE. Employing the staggered difference-in-difference (SDID) model and mediation model, we investigate the synergistic effects of the Carbon Emissions Trading Policy (CETP) and the Innovative City Pilot Policy (ICPP), along with their influencing mechanisms on ULGUE. The results demonstrate that the average ULGUE keeps increasing from 2006 to 2020 and the simultaneous implementation of CETP and ICPP enhances ULGUE, with a more pronounced effect when CETP precedes ICPP. The concurrent implementation of dual policies boosts ULGUE by leveraging technological innovation and industrial structure as mediators. The magnitude of the mediating effect is as follows: green innovation > general innovation > rationalization of industrial structure > advancement of industrial structure. We also observe heterogeneous synergistic impacts of CETP and ICPP on ULGUE, with greater effectiveness in non-resource-based and large-scale cities. These results offer valuable insights for crafting effective policy combinations to advance sustainable development trajectories for China and other developing countries.

How the establishment of carbon emission trading system affects ship emission reduction strategies designed for sulfur emission control area

As the backbone of the international seaborne trade, the pollution and emission from shipping are highly concerned by governments and international organizations as well. The International Maritime Organization has designated five emission control areas (ECAs) to limit sulfur oxides emissions of ships. Meanwhile, the European Union has included the shipping industry in the EU Emission Trading System since 2024 to control their carbon emissions. The strategies like switching fuel, installing scrubber or detour, are commonly used to comply with the ECA regulation, but they may increase carbon emissions and possibly incur extra carbon trading cost. In this case, the shipping company should investigate the influence of marine emission trading system (METS) on emission reduction strategies used under ECA regulation. Therefore, this paper focuses on this problem and formulates it as a mixed-integer nonlinear programming model. Several numerical experiments are conducted to show the applicability of the proposed model. The results show that ship’s detour behavior is inevitable under the ECA regulation, which incurs more carbon emissions. When METS regulation is not considered, the optimal emission reduction strategy is installing scrubber. In contrast, when METS regulation is considered, the optimal choice may be installing scrubber or fuel switching depending on different sailing route, which indicates the effect of METS on ship emission reduction strategy. Moreover, the fleet deployment and sailing speed of scrubber installation strategy are affected by METS regulation, while the strategies of fuel switching and using LNG-powered ship are almost unaffected. This indicates that installing scrubber is more easily affected by emission control policies.

Pollution Permits and Financing Costs

AbstractEffective environmental policy should consider how the financiers of polluting firms behave. We study phase III of the EU Emission Trading System. Loan spreads for cap‐and‐trade participants are a function of compliance costs, permit market features, and firms’ strategic actions. In contrast with the program intentions, we find that loan spreads fall by approximately 25%. We show that this decrease is almost entirely driven by low permit prices, the firms’ proactiveness to store permits, and imperfect foresight of market conditions in phase III. The drop in spreads cannot be explained by the decline in energy prices and/or other confounding factors.

Asymmetric relationship between carbon market and energy markets

This paper examines the asymmetric returns spillovers and time-frequency causality between the carbon emissions market and the energy market. To this end, we apply the time-varying asymmetry spillovers and Granger causality over the spectrum approaches. This research uses daily price indices of natural gas, gasoline, gas oil, heating oil, crude oil, coal, petroleum, kerosene, propane, and diesel to denote the energy market and the European Union Emissions Trading System (i.e., certificate prices for CO2 emissions) to represent the carbon market. Using historical time-series data from May 18, 2011, to September 23, 2020, the study reveals interesting and convincing empirical results showing that the carbon and energy markets are dynamically and asymmetrically connected. Further results show that the carbon market predominantly explains positive or negative returns in the energy market. Regarding volatility transmission, the study demonstrates that the carbon market is a primary net receiver of good or bad volatility transmitted from the energy market, such as crude oil, petroleum, heating oil, diesel, and kerosene.

Emissions Reduction Effects and Carbon Leakage Risks of Carbon Emissions Trading Policy: An Empirical Study Based on the Spatial Durbin Model

China’s carbon emissions trading policy represents a significant institutional innovation designed to advance the country’s economic and social development towards sustainability and low-carbon growth. This study investigates the effects of China’s carbon emissions trading policy by employing the difference-in-differences model and spatial Durbin model, using provincial panel data spanning from 2005 to 2020. We find that the carbon emissions trading policy can inhibit per capita carbon emissions in the pilot areas. This work is primarily driven by green technological innovation and the upgrade of industrial structure. Furthermore, the carbon emissions trading policy exhibits a positive spatial spillover effect, inhibits per capita carbon emissions in the areas adjacent to the pilot through demonstration effect and competition effect, and does not cause carbon leakage. These findings reveal the policy’s effectiveness in emissions reduction, and may be useful reference for promoting sustainable economic and social development. This is of great practical significance for exploring how to optimize environmental governance measures, avoid carbon leakage, and achieve balance and fairness in responsibilities in achieving low-carbon sustainable development. Our study proposes policy recommendations for synergizing the national trading market in China.

The EU Emission Trading System Tax Regime and the Issue of Unfair Maritime Competition

The EU Emission Trading System Tax Regime and the Issue of Unfair Maritime Competition

Research on Accounting Treatment of China's Carbon Emission Right under Low Carbon Economy

Carbon accounting plays an important role in the balance between economic development and environmental protection. It is an effective tool to push enterprises to reduce emission. Under the guidance of the carbon peaking and carbon neutrality, along with the establishment and development of China's carbon emission trading market, the Ministry of Finance also issued the Interim Provisions on Accounting Treatment of Carbon Emission Trading to guide the standardized accounting treatment of relevant businesses of key emission enterprises in China. In this paper, the existing research on carbon accounting was discussed, and the views of the industry on the recognition and measurement of carbon emission quotas before and after the promulgation of the Provisional Provisions were reviewed. Moreover, the shortcomings of the Provisional Provisions were analyzed, hoping to contribute to the improvement of China's carbon accounting system and the development of the carbon emission trading market.

Modeling and Analyzing Carbon Emission Market Volatility and Impact: Evidence from Guangdong Province, China

This research investigates the volatility of carbon prices in Guangdong’s emission trading market, a critical element of China’s broader climate strategy aimed at reducing greenhouse gas emissions and promoting sustainable development. This study applies ensemble empirical mode decomposition (EEMD) to analyze the complex interactions between carbon price fluctuations and various economic factors, including energy prices and environmental regulations. By decomposing the data, we identify key trends and cycles within the market, providing a clearer understanding of both short-term volatility and long-term market trends. Our findings reveal that regulatory policies play a pivotal role in shaping carbon market dynamics, with shifts in regulations leading to significant price volatility. Additionally, fluctuations in global energy prices, especially oil and coal, are found to have a considerable impact on carbon price movements, further complicating the market’s stability. This underscores the interconnected nature of the carbon trading market with broader economic and environmental factors, both domestic and international. The findings provide valuable insights for policymakers and market participants, underscoring the importance of stable carbon markets for promoting the transition to a low-carbon economy and achieving broader sustainability goals.

Do Emission Trading Systems, Green Technology, and Environmental Governance Matter for Environmental Quality? Evidence from the European Union

This study investigates how emission trading systems can diminish the ecological footprint in the European Union bloc by considering the contribution of eco-friendly technology and ecological governance through another market-based intervention (i.e., environmental tax). Using PQARDL in the 26 EU members for data during 2011–2021, the study demonstrates that carbon pricing emission trading systems successfully reduce emissions in medium and upper quantiles but have little influence on lower quantiles. As businesses and consumers face higher costs for carbon-intensive activities, they are encouraged to adopt cleaner technologies and more sustainable practices. Over time, this shift decreases overall carbon emissions and resource consumption, which helps lower ecological pressure. Additionally, Europe's robust regulatory framework and commitment to climate goals ensure that carbon pricing is enforced consistently, further amplifying its positive environmental impact. Eco-friendly technology innovation appears to be a powerful tool for achieving rapid environmental advantages, leading to a considerable reduction in environmental footprint across various levels. Climate-smart patents can significantly curb emissions within the ecosystem and help balance the economy and the environment. Environmental taxes work alongside carbon pricing and green patents to incentivize individuals and corporations to adopt more sustainable practices in the 26 EU members. By unraveling the multifaceted relationships underpinning emission trading systems, renewable energy, green patents, and environmental tax, this study provides actionable insights to guide strategic decisions and policy formulations to reduce the ecological footprint.

Does the Carbon Emission Trading Scheme Truly Enhance Green Innovation Efficiency? From the Perspective of Market Mechanism and Government Intervention

Does the Carbon Emission Trading Scheme Truly Enhance Green Innovation Efficiency? From the Perspective of Market Mechanism and Government Intervention

Allocation or Skill? What is Driving Corporate Trading Performance in the EU ETS?

This study empirically analyzes factors related to companies’ profits from trading emission allowances in the European Union Emissions Trading System (EU ETS) for the period from 2005 to 2017 by combining information on trading activities with company characteristics of more than 6,000 companies. The factors considered include net position (i.e., free allocation of allowances minus emissions), strategic skills (i.e., banking of allowances, timing of trading, transaction frequency, use of intermediaries), skill-related structural factors (i.e., number of installations, sector affiliation), market pressure, year, and region effects. The results from estimating a Panel Heckman Selection Model suggest that companies’ profits from buying and selling emission allowances are related to a company’s net position, banking of allowances, timing of trading, and the number of installations. The findings further indicate that companies choose the number of banked allowances efficiently, that is, they take into account the opportunity costs of selling these allowances on the market. JEL Classification: Q48, Q54, Q58

Cultural, Economic, or Transport Link: Does Carbon Emissions Trading Promote “Good Neighbor” Carbon Emission Reduction?

Carbon emission reduction was a crucial objective for China’s green transformation, yet establishing regional cooperation with neighboring areas posed a significant challenge in carbon governance. We investigated the spillover effects of carbon emissions trading (CET) on carbon emissions among Chinese cities, employing spatial difference-in-differences (DID), Callaway and Sant’Anna DID (CSDID), and other methodologies. Our paper integrated datasets on high-speed rails, dialects, and carbon emissions at the prefecture-level city scale. The findings revealed that (1) CET reduces emissions by 11.55% in pilot regions, although the impact of the second policy pilot was not significant. (2) In terms of spillover effects, CET increased emissions in neighboring cities with economic and geographic ties, creating a “beggar-thy-neighbor” reduction model. Conversely, it reduced emissions in cities with shared cultural ties, fostering a “good neighbor” reduction model. (3) The policy spillover effect exhibited an “inverted N” curve, first decreasing, then increasing, and finally decreasing as economic and geographic distance increased. (4) Technological advancement was identified as the primary mechanism driving the spillover effects of CET. To achieve the dual-carbon goal, avoiding harmful economic competition and promoting low-carbon cultural exchanges were essential.