EU ETS Research Articles

Hydrogen as a Renewable Fuel of Non-Biological Origins in the European Union—The Emerging Market and Regulatory Framework

The European Union continues to lead global efforts toward climate neutrality by developing a cohesive regulatory and market framework for alternative fuels, including renewable hydrogen. This review article critically examines the recent evolution of the EU’s policy landscape specifically for hydrogen as a renewable fuel of non-biological origin (RFNBO), highlighting its growing importance in hard-to-abate sectors such as industry and transportation. We assess the interplay of market-based mechanisms (e.g., EU ETS II), direct mandates (e.g., FuelEU Maritime, RED III), and support auction-based measures (e.g., the European Hydrogen Bank) that collectively shape both the demand and the supply of hydrogen as RFNBO fuel. The article also addresses emerging cost, capacity, and technical barriers—ranging from constrained electrolyzer deployment to complex certification requirements—that hinder large-scale adoption and market rollout. The article aims to discuss advancing and changing regulatory and market environment for the development of infrastructure and market for hydrogen as RFNBO fuel in the EU in 2019–2024. Synthesizing current research and policy developments, we propose targeted recommendations, including enhanced cross-border coordination and capacity-based incentives, to accelerate investment and infrastructure development. This review informs policymakers, industry stakeholders, and researchers on critical success factors for integrating hydrogen as a cornerstone of the EU’s climate neutrality efforts.

Tracking Secondary Raw Material Operational Framework—DataOps Case Study

The ceramic and glass industries, integral to the EU Emissions Trading System (EU ETS), face significant challenges in achieving decarbonization despite advancements in energy efficiency. The circular economy offers a promising pathway, emphasizing the reuse and recycling of waste materials into secondary raw materials (SRMs) to reduce resource consumption and emissions. This study investigates a standardized waste supply chain framework, developed collaboratively with stakeholders, tailored for the ceramic sector. The Waste Resource Platform (WRP) integrates Industry 4.0 paradigms, utilizing a modular, layered architecture and a process-centric design. The framework includes experimental tests and co-creation methodologies to refine a digital marketplace that connects stakeholders, facilitates SRM exchange, and fosters industrial symbiosis. The WRP demonstrates the potential for SRMs to replace virgin materials, reducing environmental impacts and production costs. It enhances supply chain transparency through digital traceability, promotes predictive material sourcing, and streamlines logistics via algorithmic optimization. Challenges such as regulatory gaps and quality standards are addressed through standardized processes, open data governance, and innovative algorithms. The WRP project advances circular economy goals in the ceramic sector, promoting waste reuse, industrial symbiosis, and supply chain resilience. Its standardized, open-access platform offers a scalable model for other industries, fostering sustainable practices and resource efficiency while addressing global climate targets.

Robust optimal model of green vendor-managed inventory for carbon emission reduction and supply chain visibility

Green supply chain management (SCM) and the green vendor-managed inventory (VMI) strategy are increasingly becoming the focus of the academic world. This paper innovatively investigates the green VMI problems in a three-tier supply chain network, especially incorporating multiple constraints such as supply chain visibility (SCV), quality constraints, carbon emission allowance trading mechanism and green technology investment. To solve this multi-constraint problem, a robust multi-objective optimisation model is constructed in this paper to handle the demand uncertainty. Example values verify the model’s performance, and the sensitivity analysis of critical parameters is carried out. The results show that the robust model can effectively realise the optimal solution of the whole multi-objective system by balancing the optimal value of a single objective function under the multi-objective model. In addition, maintaining a low defect rate and delivery delay rate is crucial for efficient supply chain operation. Furthermore, SCV and supply chain green efficiency need to be balanced, and the pursuit of high SCV will inevitably increase the carbon emission cost of the supply chain system. However, the results also show that investment in green technology R&D can help to improve this situation and realise the effective reduction of carbon emissions while increasing SCV.

Driving sustainable agroforestry through carbon credit-based policies: Realities and perspectives

Carbon credit-based policies are important to driving sustainable practices worldwide. These policies have in the past focused mainly on wetlands, forests, and other ecosystems, neglecting agroforestry—which is a climate-smart and agroecological practice. This paper therefore seeks to examine how carbon credit-based policies can drive sustainable agroforestry through an in-depth empirical review of literature. It was found that the most common carbon credit-based policies and schemes are government-led, including the CCER (China Certified Emissions Reduction), ETS (EU Emissions Trading System), and the California Global Warming Solutions Act in the United States of America. These schemes focus on heavy emitters such as transportation, steel, and cement. Carbon credits guiding carbon credit-based policy formulation and implementation are mainly: Credits from avoided emissions (not cutting down trees); credits from reduced emissions (energy-efficient technologies); and credits from removed emissions (tree planting and carbon capture tech). Factoring in these 03 main types of carbon credits into the carbon credit policy framework will drive sustainable agroforestry across the world in general and the developing world in particular, as smallholder agroforestry farmers will be encouraged to practice agroforestry. One of the main stumbling blocks to the practice of agroforestry is the financial cost involved in its establishment and management, which the carbon credit scheme would offset. Besides driving sustainable agroforestry, carbon credit-based policies in the domain of agroforestry would provide other co-benefits such as employment generation; technology transfer; improved energy security and access to energy services; improved livelihoods; improved air, water, or soil quality; and infrastructure development.

Carbon Policies and Liner Speed Optimization: Comparisons of Carbon Trading and Carbon Tax Combined with the European Union Emissions Trading Scheme

This paper explores how optimizing vessel speeds can help reduce carbon emissions in the maritime industry. Focusing on liner shipping routes between China and Europe, it examines how carbon pricing mechanisms, including carbon taxes and emissions trading under the European Union Emissions Trading Scheme (EU ETS), impact operational costs and emissions reduction. With the use of advanced optimization methods, such as the Non-dominated Sorting Genetic Algorithm-II (NSGA-II) and the Technique for Order of Preference by Similarity to an Ideal Solution (TOPSIS), this research explores the balance between adjusting vessel speeds and minimizing emissions. The findings show that shipping companies on the China–Europe route can reduce the financial strain of carbon pricing by carefully managing speeds and voyage times. This study compares two scenarios of carbon tax policy and carbon trading rights in terms of voyage costs and carbon emissions. The results of this comparison based on the given parameters indicate a reduction of 1124 tons of carbon emissions with the carbon tax policy scenario, while the carbon trading rights scenario allows for more voyages yearly (5.24 vs. 5.30). This demonstrates one policy being more economical, while the other is also more environmentally efficient. These insights support the development of strategies that align environmental goals with economic priorities, paving the way for more sustainable maritime operations. The study introduces its objectives and reviews relevant literature by presenting a detailed methodology, incorporating emissions modeling with clearly defined parameters. The analysis presents results that undergo sensitivity testing and limitations using MATLAB (R2022a version). The study concludes by discussing policy implications and recommendations for future research and practical advancement

Are carbon trading markets efficient? A longitudinal investigation

ABSTRACT We examine the evolution of price efficiency in the European Union Carbon Emissions Market and the net cross-correlations between the carbon and commodities markets using Multifractal Detrended Fluctuation Analysis (MFDFA), and Detrended Partial Cross-Correlation Analysis (DPCCA), methods based on dynamic systems derived from econophysics. Our analysis is based on daily values of the S&P GSCI Carbon Emission Allowances (EUA) EUR index and the S&P GSCI index for the period between January 2010 and June 2024 and uses seven-year rolling windows. Our results are supportive of the adaptive market hypothesis and indicate that the efficiency of the EU ETS markets has been improving steadily and that its correlation with the broader commodities market is increasing over time.

Who pays for the EU Emission Trading System? The risk of shifting tax burden from firm to final consumer

Who pays for the EU Emission Trading System? The risk of shifting tax burden from firm to final consumer

Трансграничные эффекты экологической политики Европейского союза: до и после «Зелёной сделки»

EU environmental policy primarily addresses the internal problems of the Union. At the same time, due to the size of the EU economy and the vigorous nature of the policy, numerous transboundary effects can arise, resulting in environmental changes in third countries and, indirectly, worldwide. The article examines the negative and positive transboundary externalities of EU environmental policy and speculates on the future international effects of the European Green Deal. The author describes typical examples of externalities of the European environmental regulation. It is revealed that the international trade is the main channel of their distribution. Their negative impact on third countries usually takes the form of excessive use of national natural resources, as well as the form of “carbon leakage” which stems from the EU emissions trading system. Positive externalities encompass the Brussels effect and demonstration effect and contribute to the development of environmental regulation in partner countries. The energy reform and carbon border adjustment mechanism are identified as the most important provisions of the Green Deal’s international dimension. The potential impact of the Green Deal’s transboundary externalities is described in the form of scenarios for different groups of countries. African hydrocarbon exporters are expected to suffer the greatest damage. At the same time, they have the best prospects for green transformation. Other countries are likely to be forced to speed up the decarbonisation of their economies in the medium term, while the most developed and powerful of them, such as the United States and China, stand to benefit by the expanding demand for environmental technologies

Research on the Interrelationship Between Carbon Markets Based on the Method of Wavelet Coherence

In recent years, the excessive use of fossil fuels has led to global warming and a series of environmental crises. Carbon emissions trading, as a market-based mechanism to reduce carbon emissions, has received widespread attention and application. This paper investigates the dynamic dependency and causal interrelationships between Chinese pilot city carbon markets and the European Union Emissions Trading System (EU ETS). Using the wavelet analysis method, this paper empirically examines the data of various cities' carbon markets in China and the EU ETS from June 2014 to February 2023. Significant differences are found in the relationships between Chinese city carbon markets and the EU ETS. The study indicates that, with the exception of Shenzhen, the dynamic interactions between Chinese city carbon markets are weak in the short term but gradually strengthen in the long term. Not all city carbon markets in China have strong correlations, but they are closely related to factors such as local policies, economies, and industrial structures. There is no stable lead-lag relationship among the prices of carbon markets in different Chinese cities. After 2022, there is a trend of positive lag relationship of carbon market prices in Chinese cities (such as Guangdong, Shanghai, Chongqing) with those in the EU ETS. This paper summarizes the relationship between Chinese city carbon markets and the EU ETS and puts forward suggestions for the development of Chinese carbon market construction, including improving institutional systems, strengthening market supervision, promoting technological innovation, and implementing policies to stabilize price fluctuations.

Pricing efficiency of European carbon futures market during the COVID-19 pandemic

We investigate the effects of the COVID-19 pandemic on the efficiency of the European Union Emission Trading Scheme (EU-ETS). This study provides one of the first accounts of the pricing efficiency of EU-ETS around the final leg of its Phase (III) implementation. The study documents that the EU-ETS futures prices become informationally efficient at extremely short horizons (5–30 minutes) that are comparable to mature conventional markets. These results are robust to three methods, namely, ordinary least squares (OLS) autoregression, quantile autoregression, and variance ratio tests. Moreover, the EU-ETS futures prices impound the information content of economic activity in the major European markets at an extremely fast pace (5–30 minutes). The dynamic correlations obtained from the DCC-GARCH method suggest that the linkages between EU-ETS and economic activity remain intact, even when the effect of the pandemic is most severe. Overall, these results indicate that EU-ETS has substantially attained its stated objectives related to pricing efficiency. JEL classification: Q51, Q54, G14, G01, G10

Evaluating the effectiveness of the EU ETS in reducing greenhouse gas emissions in the shipping sector

Evaluating the effectiveness of the EU ETS in reducing greenhouse gas emissions in the shipping sector

Interactions and distortions of different support policies for green hydrogen

This paper explores various policies to support climate-neutral hydrogen production, focusing on their interaction with energy markets and cap-and-trade systems such as the EU emission trading scheme. We develop and deploy a state-of-the-art equilibrium model to examine the effect of hydrogen support policies on the interactions between hydrogen, electricity and emission markets. Our analysis shows that mechanisms remunerating hydrogen production can distort spot prices of electricity and hydrogen more strongly than mechanisms that remunerate hydrogen production capacity. Hydrogen support mechanisms furthermore promote renewable electricity production and deter investment in conventional generation assets. The associated decrease in emissions in the power sector leads to an increase of emissions in the industrial and hydrogen sector due to the waterbed effect in the EU emission trading scheme. Our case study on an emission-capped area inspired by the EU shows that the operational distortions that production-based mechanisms exhibit, typically increase costs more than the investment distortions that capacity-based mechanisms entail.

Deep recurrent Q-network algorithm for carbon emission allowance trading strategy

Against the backdrop of global warming, the carbon trading market is considered as an effective means of emission reduction. With more and more companies and individuals participating in carbon markets for trading, it is of great theoretical and practical significance to help them automatically identify carbon trading investment opportunities and achieve intelligent carbon trading decisions. Based on the characteristics of the carbon trading market, we propose a novel deep reinforcement learning (DRL) trading strategy - Deep Recurrent Q-Network (DRQN). The experimental results show that the carbon allowance trading model based on the DRQN algorithm can provide optimal trading strategies and adapt to market changes. Specifically, the annualized returns for the DRQN algorithm strategy in the Guangdong (GD) and Hubei (HB) carbon markets are 15.43% and 34.75%, respectively, significantly outperforming other strategies. To better meet the needs of the actual implementation scenarios of the model, we analyze the impacts of discount factors and trading costs. The research results indicate that discount factors can provide participants with clearer expectations. In both carbon markets (GD and HB), there exists an optimal discount factor value of 0.4, as both excessively small or large values can have adverse effects on trading. Simultaneously, the government can ensure the fairness of carbon trading by regulating the costs of carbon trading to limit the speculative behavior of participants.

Carbon Giants: Exploring the Top 100 Industrial CO2 Emitters in the EU

We analyze emissions and associated damages from the top 100 industrial CO2 emitters in the EU using data from the European Pollutant Release and Transfer Register, the EU Transaction Log, population grids, and regional information. These top emitters account for 19% of total EU CO2 emissions, 39% of industrial CO2 emissions, as well as a third of industrial SOx and NOx emissions, and a significant share of industrial PM10 emissions. In 2017, monetized damages of hazardous co-pollutants range from 20 to 67 billion Euros, and combined co-pollutant and climate damages amount to between 92 and 260 billion Euros. The top 100 alone would exhaust the EU’s carbon budget in a few decades. The joint climate and co-pollutant damages of a significant number of the top 100 exceed the economic value generated by the entire industry sector in their respective regions, indicating substantial underregulation. Yet the top 100 received free EU Emissions Trading System permits for 27% of their carbon emissions. Many top emitters are located in densely populated regions, with 3.1% of EU’s population living within 10 kilometers of a Carbon Giant. Our analysis reveals the critical importance of addressing major emitters in research and policymaking.

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.

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.

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.

The production of biogenic carbon and green hydrogen through biomethane pyrolysis: the environmental benefits for the metallurgy sector

Abstract The iron and steel industry is responsible for around 4% of androgenic CO2 emissions in Europe and 9% worldwide. This is due to the massive use of carbon coke in metallurgy, which is not only linked to energy purposes, but also to the chemical process of iron ore refining. The steel sector urgently needs to find alternative solutions to improve environmental sustainability, with the transition to a low-carbon scenario representing a major challenge. The pyrolysis of methane is gaining more and more attention for the production of hydrogen, as this alternative process to hydrogen production does not generate any CO2 emissions, but provides a solid carbon product that can be re-used in an industrial symbiosis. If biomethane is used, the pathway is even carbon-negative, and generates a net GHG reduction compliant with the EU ETS (Emission Trading Scheme). However, given the high demand for inlet streams in the EU steel sector, the biomethane currently available is not able to meet the entire hydrogen demand assuming that the steel is produced using the DRI-EAF (Direct Reduction Iron-Electric Arc Furnace) route. Only when looking at the European projections for biomethane production in 2050, it is expected that the demand for steel hydrogen can be totally met, in particular by using 48% of the available biomethane, allowing up to 6 million tons of green hydrogen to be produced, and a significant reduction in net CO2 emissions. Finally, the aim of this work is to assess the energy consumption and environmental benefits resulting from the production of green hydrogen and biogenic carbon in Europe for DRI-EAF, compared to the benchmark market (DRI-EAF fed with natural gas) and the electrolysis alternative.

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.

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