Emissions Cap Research Articles

Cost, innovation, and emissions leakage from overlapping climate policy

Jurisdictions have implemented a variety of policy instruments to mitigate greenhouse gas emissions. However, interactions between overlapping climate policies can lead to unintended impacts. This study demonstrates how interactions between an incomplete emissions cap and additional climate policy can result in higher emissions and higher average abatement costs relative to an emissions cap alone. This sectoral policy emissions displacement effect is then quantified through simulations using a computable general equilibrium model for the case of California's low-carbon fuel standard (LCFS) and cap-and-trade program. Emissions increase as a result of the LCFS incentivizing greater production of alternative transportation fuels with emissions not covered by the emissions cap. Emissions leakage can be mitigated by incorporating elements of a fixed-price instrument (i.e. carbon tax) to improve policy complementarity or requiring an obligation for the lifecycle GHG emissions of fuels under the emissions cap.

EXPERIENCE WITH GREENHOUSE GAS EMISSION ALLOWANCE ALLOCATION AND ANALYSIS OF LESSONS FOR VIET NAM

This study analyzes and synthesizes international experiences in allocating greenhouse gas emission quotas, drawing lessons for Viet Nam's developing carbon market. The research examines emission trading systems (ETS) and quota allocation methods from various countries and regions, including the European Union, Germany, Austria, the United Kingdom, Switzerland, the United States, Canada, Nigeria, Kenya, South Africa, China, Japan, and New Zealand. Key findings highlight the importance of diversifying allocation methods, combining free allocation, auctioning, and benchmarking approaches. The study emphasizes the need for flexibility in system design, adapting to specific economic and social conditions of each country. Lessons learned include prioritizing high-emission reduction potential sectors, setting reasonable emission caps based on actual data, ensuring transparency in information disclosure, and establishing effective monitoring and evaluation mechanisms. The research also stresses the importance of providing technical support to businesses, especially small and medium enterprises, in complying with ETS regulations. Additionally, the study addresses concerns such as preventing carbon leakage, assessing social impacts, and ensuring international compatibility of the system. These insights provide a valuable foundation for Viet Nam to develop an effective greenhouse gas ETS that aligns with national conditions and sustainable development goals.

The direct energy rebound effects for manufacturing and service sectors in China: Evidence from firm-level estimations

China has implemented a variety of energy efficiency policies to achieve energy saving and carbon abatement targets. While the national carbon market has been launched and China has opted to give market-oriented policies a greater role in achieving net zero, energy efficiency policies still constitute a significant portion of the policy mix. However, the substantial drawback of energy efficiency policies compared to carbon trading, the rebound effect, has made energy efficiency policies debatable. It is crucial to precisely understand the magnitude of the rebound effect to design and implement effective energy policies. Our study estimates and compares the direct energy rebound and output expansion effects in China's manufacturing and service sectors using firm-level data from 2013 to 2016 and employing panel regression analysis. We also analyze the impact of firm characteristics such as ownership status, geographical location, and industry type on enterprises' rebound effects. We found a 33.5% direct rebound effect and a 19.3% output expansion effect in the manufacturing sector. In the service sector, the direct energy rebound effect was 57.9%, a larger one than the manufacturing sector. We also estimate direct energy rebound effects for key manufacturing and service enterprises. Our findings reveal that key manufacturing enterprises exhibit a larger rebound effect compared to the overall manufacturing sector, while key service enterprises show a smaller rebound effect than the overall service sector. Public, foreign, and heavy service enterprises show a smaller energy rebound effect, while northeastern manufacturing and service enterprises exhibit a larger rebound effect. We suggest that China's carbon market should also cover key service enterprises. For those below the threshold, enhancing energy management is essential to mitigate the rebound effect. Aligning with carbon emission cap targets, rather than relying solely on energy efficiency policies, could more effectively achieve energy savings and carbon abatement.

The impact of carbon emission regulations on B2C car-sharing platforms’ operating models

PurposeAlthough the impact of carbon emissions regulations is evident to upstream automakers, their influence on downstream B2C car-sharing platforms remains unclear. This article reveals the influence of carbon emission regulations on the performance of supply chain members. In particular, we focused on the decision of B2C car-sharing platforms.Design/methodology/approachWe develop a three-stage dynamic game model consisting of an automaker, a B2C car-sharing platform and consumers.FindingsThe carbon emission cap has a critical threshold. Above this threshold, the regulation is ineffective for the platform’s operating model. Below it, the regulation affects the platform, moderated by customers' green awareness. The threshold initially decreases (weakly) and then increases in awareness. Effective caps reduce profits for the manufacturer, B2C car-sharing platform and supply chain, while ineffective caps see higher profits with increased awareness.Originality/valueFirstly, this paper explores the impact of carbon emission caps on the operational strategies of B2C car-sharing platforms within the sharing economy, complementing existing research. Secondly, it identifies conditions where stricter caps prompt B2C car-sharing platforms to adjust their operational models and offers fresh insights for managers and departments responsible for carbon emission policy formulation. Thirdly, the study uncovers how carbon emission caps affect the performance of supply chain members, providing crucial managerial insights for sustainable operations.

Carbon emissions cap or energy technology subsidies? Exploring the carbon reduction policy based on a multi-technology sectoral DSGE model

As global climate change becomes increasingly severe, energy technology innovation has become a key means of coping with the climate crisis and realizing green and low-carbon development. However, existing literature rarely examines the effects of carbon emission reduction policies based on the perspective of energy technology progress for both short-term economic fluctuations and long-term equilibrium. This paper introduces the fossil energy technology sector and the renewable energy technology sector into the dynamic stochastic general equilibrium (DSGE) model, and compares the effectiveness of the carbon emission cap policy, the fossil energy technology subsidy policy, and the renewable energy technology subsidy policy under the framework of China’s carbon trading market in promoting macroeconomic growth and controlling pollutant emissions. We found that in long-term, the emission reduction effect of the carbon emission cap policy falls short of the other two policies, and subsidizing fossil fuel technologies is more cost-efficient comparatively. The government expenditure shock can all stimulate macroeconomic growth with crowding out of private investment and household consumption, whereas the energy technology research productivity shock leads to a decline in total output and an increase in renewable energy technology demand. In addition, pollutant emissions are pro-cyclical under the impact of total carbon policies and counter-cyclical under the impact of energy technology subsidy policies. This article constructs a multi-technology sectoral dynamic stochastic general equilibrium model, expanding the research perspective and theoretical framework for evaluating carbon emission reduction policies. At the same time, it proves the importance of the government to implement the phased energy technology subsidy policy while implementing the carbon emission cap policy, which provides important enlightenment for the implementation and adjustment of carbon emission reduction policy.

Tax versus regulations: Polluters’ incentives for loosening industry emission targets

We investigate the political incentives of a polluter in affecting industry emission targets (relaxing emission restrictions) imposed by the government in a monopoly market. Specifically, we compare three typical environmental policies—two command-and-control regulations (an emission cap regulation that restricts total emissions and an emission intensity regulation that restricts emissions per output unit), and an emission tax. We presume a policy to be most robust when a less strict emission target (i.e., an increase in the targeted emission level) imposed by the government on the industry increases the firm’s profit least significantly among the three policies. This is because the firm has the least incentives for affecting emission targets. We find that the emission tax is the most robust if the government aims for a net-zero emission society. However, the emission tax is the least robust if the emission target is not ambitious or the government has weak resolve against political pressures from polluters.

Mapping construction sector greenhouse gas emissions: a crucial step in sustainably meeting increasing housing demands

This paper examines the tension between needing to build more infrastructure and housing and simultaneously reduce greenhouse gas emissions (GHG) to avoid the most catastrophic impacts of climate change. This study uses an Environmentally Extended Input-Output approach to conduct a high-resolution top-down analysis of Canada’s national construction GHG emissions. Our findings highlight that Canada’s current construction practices cannot accommodate the construction required to restore housing affordability by 2030 without substantial environmental consequences. On a consumption life cycle basis, the construction sector was responsible for approximately 90 Mt CO2e in 2018, equivalent to over 8% of Canada’s total GHG emissions, while delivering less than a third of Canada’s annual housing needs. Residential construction was responsible for the largest share (42%) of total construction emissions. Overall, 84% of emissions are from material manufacturing and 35% of construction emissions are imported, underscoring the need for a comprehensive regulatory framework addressing both domestic and imported emissions. Under current construction practices (i.e. current material use patterns and emissions intensities), meeting Canada’s 2030 housing affordability and climate commitments requires an 83% reduction in GHG emissions per construction product (i.e. per home) compared to the 40% economy-wide reduction promised in Canada’s international reduction commitments. Mitigating the GHG gap between emission caps and housing demand calls for changes in the ratio of housing to other infrastructure (e.g. fewer roads, less fossil fuel infrastructure), new construction approaches (e.g. increasing material efficiency) and/or disproportionally allocating climate budget to construction. The implications of our study extend beyond Canada, offering valuable insights for other growing countries with climate goals. The results emphasize the urgency in considering and establishing sectoral GHG budgets for construction and for transformative changes in the construction sector to meet national GHG emission reduction commitments.

Effects of emissions caps on the costs and feasibility of low-carbon hydrogen in the European ammonia industry

The European ammonia industry emits 36 million tons of carbon dioxide annually, primarily from steam methane reforming (SMR) hydrogen production. These emissions can be mitigated by producing hydrogen via water electrolysis using dedicated renewables with grid backup. This study investigates the impact of decarbonization targets for hydrogen synthesis on the economic viability and technical feasibility of retrofitting existing European ammonia plants for on-site, semi-islanded electrolytic hydrogen production. Results show that electrolytic hydrogen cuts emissions, on average, by 85% (36%-100% based on grid price and carbon intensity), even without enforcing emission limits. However, an optimal lifespan average well-to-gate emission cap of 1 kg carbon dioxide equivalent (CO2e)/kg H2 leads to a 95% reduction (92%-100%) while maintaining cost-competitiveness with SMR in renewable-rich regions (mean levelized cost of hydrogen (LCOH) of 4.1 euro/kg H2). Conversely, a 100% emissions reduction target dramatically increases costs (mean LCOH: 6.3 euro/kg H2) and land area for renewables installations, likely hindering the transition to electrolytic hydrogen in regions with poor renewables and limited land. Increasing plant flexibility effectively reduces costs, particularly in off-grid plants (mean reduction: 32%). This work guides policymakers in defining cost-effective decarbonization targets and identifying region-based strategies to support an electrolytic hydrogen-fed ammonia industry.

Social equity in international environmental agreements

The aim of this paper is to investigate the problem of designing and building International Environmental Agreements (IEAs) taking into account some normative properties. We consider n asymmetric countries of the world, each one generating a quantity of pollutant emissions from the production of goods and services. We assume that individual emissions yield private benefits and negative externalities affecting all countries. To determine its own level of pollution, each state conducts a cost-benefit analysis. The absence of a supranational entity imposing emissions reduction makes IEAs based on voluntary participation. Examining the standard static non-cooperative game-theoretical model of coalition formation, we discover that the resulting emissions allocations might not be equitable à la Foley. It means that there might exist at least one player preferring to implement some other agent’s strategic plan instead of to play her own strategy. With the goal of studying whether equity, at least among coalesced countries, may be a criterion leading to social improvement, we introduce a new optimization rule. We require that members of an environmental coalition have to solve the maximization problem subject to the constraint imposing that they do not envy each other. Analyzing the particular case of two-player games, we get that, when countries are, in a sense, not too different from each other, our new mechanism endogenously induces social equity. By imposing a suitable total emission cap, the same results extend to all those games where our and standard solutions coexist and are different.

Production and carbon emission reduction decisions of remanufacturing firms with low‐carbon credit financing under uncertain demand

AbstractThis paper investigates the optimal production and carbon reduction strategy for a capital‐constrained remanufacturing firm considering demand uncertainty. The remanufacturing firm can accept low‐carbon credit financing. We construct optimization models with no financing and low‐carbon credit financing and analyze the impacts of capital, carbon emission caps, and other factors on the remanufacturer's decision and profit. The results show that (i) the output of remanufactured products and overall profit are higher when using low‐carbon credit financing, regardless of strict carbon emission conditions; (ii) low‐carbon credit can help remanufacturers withstand the impact of carbon price fluctuations; (iii) the demand uncertainty of new and remanufactured products has opposite effects on carbon emission reduction investment; (iv) increasing the carbon cap can enhance the remanufacturing level while a high carbon cap reduce incentives to remanufacture.

Production Decision Model for the Cement Industry in Pursuit of Carbon Neutrality: Analysis of the Impact of Carbon Tax and Carbon Credit Costs

One of the solutions to achieve the goal of net-zero emissions by 2050 is to try to reduce the carbon emission by using the carbon tax or carbon credit (carbon right). This paper examines the impact of carbon taxes and carbon credit costs on the cement industry, focusing on ESG indicators and corporate profits. Utilizing Activity-Based Costing and the Theory of Constraints, a production decision model is developed and analyzed using mathematical programming. The paper categorizes carbon tax models into continuous and discontinuous progressive tax rates, taking into account potential government policies like emission tax exemptions and carbon trading. It finds that reducing emission caps is more effective than increasing carbon tax rates in curbing emissions. These insights can assist governments in policy formulation and provide a reference framework for establishing carbon tax systems.

Emissions cap and structural adjustment

We use the strengthening of China's emission target control regime during the Eleventh Five-Year Plan period as a quasi-natural experiment to study the impact of strengthened environmental regulation on firm's emissions and other economic performances, and find that more rigorous environmental regulations induce firms to cut down their emissions, mainly through the “technology effect.” The structural decomposition shows that this emission reduction effect varies across industries with different levels of pollution intensity, and the power sector plays an important role in the “structural adjustment effect” among industries.

Analysing the response of CO2 emissions to business cycle in a developing economy: evidence for South Africa post-apartheid era

Introduction: This research addresses the response of CO2 emissions to economic fluctuations in South Africa post-Apartheid, covering the period 1990–2018. While previous studies focused on developed countries, limited attention has been given to sub-Saharan developing nations. The study challenges the assumption of constant emissions elasticity in current forecasts.Methods: The study employs a two-step strategy. Firstly, the rolling window regression with Hodrick-Prescott filtering was used to investigate whether the CO2 emissions elasticity varies over time. Secondly, a Markov-switching approach was used to examine the regime-switching behavior in GDP.Results and Discussion: Results suggest that CO2 emisssions elasticity varies over time. This was confirmed through alternative filtering techniques (Christiano-Fitzgerald, Baxter King, and the Butterworth filter). Markov-switching analysis revealed a regime-switching behavior in GDP, indicating negative CO2 emissions elasticity during recessions and positive elasticity during expansions. These findings persist even when accounting for monetary policy shocks and productivity shocks in the Environmental Dynamic Stochastic General Equilibrium (E-DSGE) model. Noteworthy is that South Africa is among the top 20 greenhouse gas emitters globally.Conclusion and recommendations: The study recommends tailored carbon-pricing policies that are conscious to the countercyclical nature of business cycles. Pricing emissions higher during economic upswings aligns with periods of growth. Additionally, the government is advised to invest in research and development for energy conservation, efficiency, and renewable technologies to counterbalance emissions growth. Implementing emission caps and tax incentives can further enforce pollution abatement measures. Policymakers should consider these asymmetrical responses when addressing global warming challenges in South Africa.

Integrated energy demand-supply modeling for low-carbon neighborhood planning

As the building stock is projected to double before the end of the half-century and the power grid is transitions to low-carbon resources, planning new construction hand in hand with the grid and its capacity is essential. This paper presents a method that combines urban building energy modeling and local planning of renewable energy sources (RES) using an optimization framework. The objective of this model is to minimize the investment and operational cost of meeting the energy needs of a group of buildings. The framework considers two urban-scale RES technologies, photovoltaic (PV) panels and small-scale wind turbines, alongside energy storage system (ESS) units that complement building demand in case of RES unavailability. The urban buildings are modeled abstractly as “shoeboxes” using the Urban Modeling Interface (umi) software. We tested the proposed framework on a real case study in a neighborhood in Chicago, Illinois, USA. The results include estimated building energy consumption, optimal capacity of the installed power supply resources, hourly operations, and corresponding energy costs for 2030. We also imposed different levels of CO2 emissions cuts. The results demonstrate that solar PV has the most prominent role in supplying local renewables to the neighborhood, with wind power making only a small contribution. Moreover, as we imposed different CO2 emissions caps, we found that ESS plays an increasingly important role at lower CO2 emissions levels. We can achieve a significant reduction in CO2 emissions with a limited increase in cost (75% emissions reduction at a 15% increase in overall energy costs). Overall, the results highlight the importance of modeling the interactions between building energy use and electricity system capacity expansion planning.

Low-Carbon Oriented Collaborative Planning of Electricity-Hydrogen-Gas-Transportation Integrated System Considering Hydrogen Vehicles

Under the pressures of the energy crisis and climate change, hydrogen vehicles (HVs) have experienced significant growth in many countries recently. To promote the penetration of HVs, a low-carbon collaborative planning model based on carbon emission flow (CEF) and a modified user equilibrium theory is proposed for the electricity-hydrogen-gas-transportation integrated system. New carbon capture and storage equipment, steam methane reforming (SMR) equipment, and renewable energy equipment are planned in the model, which collaborates closely to provide green hydrogen. The proposed model considers the influence of different hydrogen production methods (electrolysis and SMR) on carbon emission reduction in the integrated energy network. Aiming to account for carbon emission from the consumption perspective, the emission caps are transferred from the energy supply side to the hydrogen production station side based on the CEF model. Additionally, the proposed modified user equilibrium model considering HV cruising range and hydrogen refueling station's location is innovatively utilized to solve the HV traffic flow assignment problem and evaluate the effectiveness of candidate roads in reducing congestion time. Overall, the total cost including equipment cost, energy consumption cost, and travel time cost is minimized to obtain the optimal integrated system planning results. Simulation results demonstrate that the proposed model is effective in reducing the carbon emissions and traffic time for the integrated network considering HV demands.

Impact of downstream emissions cap-and-trade policy on electric vehicle and clean utility adoption

In this research, we incorporate emissions cap-and-trade policy into a decision making model for the adoption of electric vehicles (EVs). We consider a fleet environment that includes a taxicab company (TC, a downstream tailpipe emitter) and an infrastructure-service provider (SP, an upstream energy user) that provides fast charging services. Both SP and TC must have allowances to account for their own emissions. We examine several scenarios including (i) an equilibrium case, where the selling and buying prices of carbon are equal, (ii) a “buy-low-sell-high” case with financial derivatives, and (iii) a “transient” case based on market conditions. We combine both analytical and computational approaches to assess the impact of various emission cap values and carbon pricing on TC’s adoption of EVs, SP’s utility provider selection, total emissions, and the profitability of both entities. For instance, in both buy-low-sell-high and transient scenarios, penalizing upstream utility emissions more than tailpipe emissions is preferred if electric vehicles are likely to be adopted; otherwise, tighter tailpipe emissions restrictions should be preferred. In the equilibrium case, we show that policymakers will require additional mandates or market mechanisms to influence TC and SP choices, as both entities prefer dirty technologies. Additionally, we demonstrate that providing intermediate utility options – less expensive, but dirtier or more expensive, but cleaner – did not result in reduced emissions. This indicates that expanding utility options may not be a necessary or high-priority policy.

A heuristic algorithm to solve the one‐warehouse multiretailer problem with an emission constraint

AbstractIn this paper, we consider the one‐warehouse multiretailer problem with a global carbon emission cap constraint (OWMR‐EC). This constraint aims at limiting the carbon emissions related to the production, setup, and inventory‐holding operations. We develop a penalized relaxation (PR) method to heuristically solve the considered problem, both with and without the possibility of having initial inventory. This heuristic uses in itself another heuristic that we propose to solve the standard one‐warehouse multiretailer problem (OWMR). Our PR method is tested on numerous instances adapted from the literature. Our results indicate that the penalized method is able to find between 87.4% and 89.8% of feasible solutions for this NP‐hard problem, with an average optimality gap of 2.1% and 2.2% depending on the algorithms we use to solve the different subproblems involved in the method. The results show that our method is highly effective in terms of run‐time and solution quality, when a feasible solution is found. Furthermore, the results indicate that the heuristic for the standard OWMR is also very effective. We further perform a sensitivity analysis on the optimal solutions of the OWMR‐EC to better understand the implications of the carbon emission cap constraint. The sensitivity analysis indicates that the marginal cost of reducing carbon emissions increases as the emission cap decreases. The analysis also shows that the correlation between the cost and emission parameters has an important impact on the potential to further lower the emissions, compared to the emission of the minimum cost solution.

Repositioning shared bikes under low-carbon policies

Low-carbon policies implemented by the Chinese government have a significant impact on third-party logistics, particularly for bike-sharing operators. This study investigated the static bike repositioning problem under low-carbon policies. Repositioning shared bikes under low-carbon policies such as emission cap, carbon trading, carbon offset, and carbon tax requires strict emission limitations and complicated routing plans. Therefore, a mixed-integer linear programming (MILP) model was formulated for the integrated planning of vehicle routes and bike allocation, aiming to minimize the repositioning cost and total imbalance penalty. An improved variable neighborhood search (IVNS) is proposed to solve this problem. The algorithm includes a route generation strategy heuristic and an improved neighborhood search operator for optimizing the route design, and a greedy heuristic for tackling loading and unloading instructions along the route. Numerical experiments show that (i) the proposed IVNS algorithm outperforms the GUROBI solver and existing method in striking a balance between solution quality and computational time; and (ii) the carbon trading policy is more flexible, not only effectively reducing emissions but also encouraging the further development of the bike-sharing industry.

Joint Optimal Production Planning in Supply Chains under Diverse Low-Carbon Policies

This paper studies the impact of diverse carbon emission regulations on optimal operation decisions by exploiting the economic production lot model of a multi-manufacturer system in a low-carbon environment. The optimal production planning for multiple enterprises in terms of cost optimization and carbon emission optimization are presented in various scenarios of the fully decentralized system under carbon taxation, cap and trade, and mandatory carbon cap. We prove a unified framework for modeling the scenarios enabled by carbon tax and cap-and-trade policies. Furthermore, the decision vector of the optimal production lot is obtained by analyzing the joint decision scenario based on shared carbon emission caps. We give a comparative analysis of two settings of fully decentralized and carbon quota sharing. The results show that the decision of joint production and stock preparation can reduce the total operational costs of the multi-enterprise system, but the realized carbon emissions may not change or only increase slightly. Our study provides a useful reference for government carbon emission regulation and enterprise operation decision optimization under carbon neutrality and a carbon peak environment.

Maximizing load capacity factor through a carbon-neutral environment via a simulation of carbon peak

Carbon emissions are a global issue, especially among manufacturers, and China is facing many problems to lower such pollutants due to its goal of attaining carbon neutrality. This research applies a mathematical model to achieve the desired goal of decreasing CO2 with the innovation of carbon neutrality tools and by moving towards high quality under the load capacity factor (LCF). We adopt a simulation-based optimization approach at different carbon peaks and manipulate various scenarios in order to find the best decisions for carbon neutrality tools. The results indicate that the green innovation fund, CO2 emission tax, and CO2 emission cap have significant roles in maximizing LCF. First, the green innovation fund plays a crucial part in reducing carbon emissions. Second, a CO2 emission tax allows manufacturers to produce less than the green innovation fund and CO2 emission cap. Third, the CO2 emission cap strategy conversely allows manufacturers to produce more than the CO2 emission tax strategy. This study provides reference for policymakers to achieve carbon neutrality and for the government to determine the best carbon-neutral tools under carbon peak. Lastly, the findings help manufacturers maximize LCF and profit and clean up the environment.