EU ETS Research Articles

Research on the evolutionary strategy of carbon market under “dual carbon” goal: From the perspective of dynamic quota allocation

Carbon trading is an effective tool to reduce emissions. And the implementation of the policy requires the cooperation of all participants in the carbon market, then it will cause a contradiction between social benefits and individual benefits. To break the dilemma faced by the carbon market, it is necessary to fully consider the behavioral strategies of all participants. However, no known literature discusses the effect of quota allocation under the banking mechanism on the behavior strategies of carbon market participants from the limited rational perspective. This paper analyzes the effect of the banking mechanism on each party's strategy in the carbon market. Results show that, under the regulation of the carbon trading management center, the promotion of carbon trading policy is separated into four periods, respectively, policy trial, policy promotion, policy adjustment, and policy stability. The evolutionary stability equilibrium represents the optimal equilibrium point of the system. Adopting a banking mechanism do not affect the outcome of evolutionary stability equilibrium, but has an effect on the rate convergence to the evolutionary stability equilibrium. The findings can be utilized as a guide for accelerating the achievement of the carbon-neutral goal, perfecting the carbon market mechanism, and creating targeted emission-reduction incentive policies.

Rationing and Climate Change Mitigation*

ABSTRACT In this paper, we argue that rationing has been neglected as a policy option for mitigating climate change. There is a broad scientific consensus that avoiding the most severe impacts of climate change requires a rapid reduction in global emissions. We argue that rationing could help states reduce emissions rapidly and fairly. Our arguments in this paper draw on economic analysis and historical research into rationing in the UK during (and after) the two world wars, highlighting success stories and correcting misconceptions. However, although the empirical details play an important role, the paper is primarily based on philosophical and ethical argument and policy analysis, particularly highlighting the normative assumptions behind policy choices. We build on Hugh Upton’s work in healthcare ethics, rejecting a broader conception of rationing which conceals significant distinctions between policy options, obscuring the specific advantages of an egalitarian conception of rationing. While some argue for the modernisation of rationing, introducing tradable allowances, we argue that the rejection of markets, and a commitment to fair shares, is a key part of the value of rationing, and precisely what made rationing attractive to the public in the 1940s.

EU Climate Change News Index: Forecasting EU ETS prices with online news

Carbon prices have been rapidly increasing in the EU since 2018 and accurate forecasting of EU Emissions Trading System (ETS) prices has become essential. This paper proposes a novel method to generate alternative predictors for daily ETS price returns using relevant online news information. We devise the EU Climate Change News Index by calculating the term frequency–inverse document frequency (TF–IDF) feature for climate change-related keywords. The index is capable of tracking the ongoing debate about climate change in the EU. Finally, we show that incorporating the index in a simple predictive model significantly improves forecasts of ETS price returns.

Green Deal and Carbon Neutrality Assessment of Czechia

The European Green Deal declares climate neutrality as a goal for the year 2050. It establishes an EU binding target to reduce greenhouse gas emissions by 55 percent by 2030 compared to 1990. The market, through the EU Emissions Trading Scheme, will determine how EU member states contribute to this target. The Effort Sharing Regulation defines binding national targets to reduce the remaining GHG emissions not covered by the EU ETS. In this paper, an energy optimization model is applied to analyze the capability of Czechia to meet the climate change targets by 2030 and 2050. We define a baseline scenario derived from the National Energy and Climate Plan and three policy scenarios to assess impacts of the extension of the EU ETS to buildings and transport (EU ETS 2) and the coal phase-out on the Czech energy system. One of the policy scenarios aims at approaching climate neutrality in 2050. In addition, another scenario does not assess the impacts of the EU ETS 2 and coal phase-out but searches for the optimal path to achieve climate neutrality in 2050. Given the high level of GHG emissions in 1990 and the significant reduction in GHG emissions in the 1990s, Czechia could achieve a 55% reduction by 2030. However, further decarbonization will be quite challenging.

Carbon Pricing in Current Global Institutional Changes

Global institutional changes (GICs), having influenced energy prices, led to a steady upward trend in carbon prices on the EU ETS. The aim of the article is to assess the changes in the relationship between carbon prices and energy prices under GICs. The Bai–Perron tests for structural breaks identified two dates as the breakpoint, 21 April 2016 and 21 September 2020. We test the hypothesis that powerful external factors (GIC) are changing the trend pattern of the carbon price time series. New pricing rules of the carbon price are being formed after the breakpoint. We use daily observations from 4 January 2010 to 1 September 2022. We use GARCH models with multiple stationary time series to discover a relationship energy price with the carbon price before and after the break points. We found that three models for two breakpoints better describe the relationship between carbon prices and energy prices than two models for one breakpoint, much less one model for the entire period. We find that the carbon price depends on energy prices, especially on the price of oil, in a statistically significant way, but the gas price is not statistically significant after 21 September 2020.

Monetization of emissions reductions in the EU in the context of carbon border adjustment mechanism

It is believed that the significant reduction of greenhouse gas (GHG) emissions can be achieved by establishing a trading system of this specific product. In fact, the reduction of emissions is mainly due to decrease of production volumes and technological reasons, rather than organizational, institutional and fiscal factors. As shown in the article on the basis of correlation analysis, the reduction of GHG emissions in the steel and aluminum industries of the EU over the past two decades by an average of 95% is explained by a reduction in output in tons. The remaining 5% is related to technology improvements. In general, the efficiency of the EU Emissions Trading System for these industries is close to zero and comparable to a statistical error. At the same time, it is impossible to deny a certain effect of institutional factors, such as the climate agenda and public opinion. It is revealed that the Carbon Border Adjustment Mechanism (CBAM) is necessary for the EU, first of all, as an additional source of revenue to the EU budget, and as a tool to strengthen its leadership role in the world climate policy and global geopolitical and information spaces.

Asymmetric time-varying dependence and variable structure dependence measurement and analysis of EUA and CER

Abstract This paper analyzed the time-varying dependence and structural dependence between EU allowances (EUAs) and certified emission reductions (CERs) by using price fluctuation data from 2008 to 2021 on EU ETS. It was found that (1) there was a strong nonlinear spillover relationship between EUAs and CERs. From 14 March 2008 to 16 March 2012, the time-varying dependence values of EUAs and CERs were mostly between 0.6 and 1 and the mean coefficient of dependence was 0.86, showing a strong interdependence. From 17 March 2012 to 2 January 2017, the correlation between them was mostly below 0.6 and the mean coefficient of dependence fell to 0.25. This indicates that the dependency between EUA futures and CER futures was very low at this stage. However, in general, the mean value of dependence was above 0.55, that is, there was a dependency between them. (2) From 14 March 2008 to 2 January 2017, there were 12 structural mutation points in EUA and CER yield sequences. After four mutation points, the dependence coefficient increased and the structural dependence enhanced. Meanwhile, after eight mutation points, the dependence coefficient decreased and the structural dependence weakened. The overall level remained above 0.6, showing the existence of structural dependence. (3) Abrupt changes in EUA and CER prices were closely related to the promulgation of major policies and unpredictable emergencies. The former caused carbon prices to fluctuate slightly. When the period of change was short and the recovery was rapid, it caused sharp fluctuations in carbon prices. When the duration of change was long, and the recovery was slow, it yielded impacts that extend far beyond the publication of important information.

The carbon border adjustment mechanism: What does it mean for steel recycling?

The European Union's carbon border adjustment mechanism (CBAM) is a landmark policy proposal. As this study finds, not only might it assist in providing signals to lower emissions in some of the most greenhouse gas-intensive sectors of the world economy; it also may also drive resource recovery.This study focuses on CBAM's impact on scrap use for steel production. It investigates the nature and magnitude of the price signal by analysing costs of compliance for steelmakers using a variety of emissions intensities of different commercially operational steelmaking techniques, applied using the proposed CBAM liability model and emissions pricing data from the clearing prices observed in the EU's emissions trading system (EU ETS). In addition, it examines historical correlations in key commodities linked to steelmaking like EU carbon allowances, steel and ferrous scrap steel, validating the observation made by some analysts that free allocation in the EU ETS mutes the incentive to recycle steel. The study identifies factors that influence the magnitude and nature of the price signal, including uncertainty about the final CBAM design, the impact of market fundamentals and feedstock commodities, alternative green steel technologies and the relative importance of the longer-term outlook compared to nearer-term market signals.The study finds that resource recovery and recycling will lead to reductions in greenhouse gas emissions and vice versa, meaning well designed measures can advance both aims. This has implications for policy makers and business managers, who will be able to focus scarce resources to capture these co-benefits. This can reduce regulatory burden in an environment where overregulation is identified by previous studies as a barrier to better waste management practice.

Neue Klimaschutzregeln für den europäischen Luftverkehr – Chancen und Risiken

Abstract In December 2022, the EU Commission, the EU Parliament and the EU Council agreed on new climate protection policy measures for European air transport within the framework of the so-called trialogue. The trilogue decision means that European aviation will make a greater contribution to climate protection in the future, as the regulations of the EU emissions trading system will be tightened and incentives for the increasing use of sustainable aviation fuels (SAF) will be introduced at the same time. Whether further measures proposed as part of the Fit for 55 package, such as a European kerosene tax, will be introduced in the future is currently open. This paper provides an overview of the new climate protection regulations that will affect European aviation in the future and the opportunities and risks that will arise from an environmental and economic perspective.

The status quo of the EU transport sector: Cross-country indicator-based comparison and policy evaluation

Greenhouse gas (GHG) emissions are declining in all major sectors in the European Union, with the exception of one sector that has seen a significant increase in GHG emissions over the past decade - transport sector. The European transport sector faces a significant challenge in achieving the decarbonization goal set by the European Green Deal. Although the European Commission is planning to introduce a set of EU-level measures, such as the inclusion of road transport in the EU Emissions Trading System, the progress of greening the transport sector has so far largely depended on national policies. To understand whether European countries are committed to rapidly adapt to low-carbon transport systems, it is crucial to evaluate what progress have national policies achieved so far in moving towards a sustainable transport system. This study used a three-level assessment of transport sector sustainability across European countries. First, this study assessed the overall sustainability level of the transport sector in all European Union Member States and the United Kingdom using the composite sustainability index method for cross-country comparison. Countries were compared using 15 transport indicators grouped into four dimensions (mobility, sustainability, innovation, and environment) based on the latest available data from 2017 obtained from Eurostat, European Commission, and Odysee-Mure databases. Second, in order to identify the dynamics of progress, Logistic Mean Division Index (LMDI) decomposition analysis was conducted to assess the changes in greenhouse gas (GHG) emissions from the transport sector over ten years, taking into account the five main factors: emission intensity effect, renewable energy (RES) transition effect, energy intensity effect, economic growth effect, and population growth effect. Third, to analyse what has impacted the sustainability of the transport sector in countries, the study highlighted several key policies (directions) for decarbonizing transport from the analysis outlining the good practice policies from the best performing countries. The combined results of the composite sustainability index and decomposition analysis revealed significant differences between Nordic, Western, and Eastern European countries, suggesting that different approaches should be taken in developing effective sustainability policies for transport.

E-waste recycled materials as efficient catalysts for renewable energy technologies and better environmental sustainability.

Waste from electrical and electronic equipment exponentially increased due to the innovation and the ever-increasing demand for electronic products in our life. The quantities of electronic waste (e-waste) produced are expected to reach 44.4 million metric tons over the next five years. Consequently, the global market for electronics recycling is expected to reach $65.8 billion by 2026. However, electronic waste management in developing countries is not appropriately handled, as only 17.4% has been collected and recycled. The inadequate electronic waste treatment causes significant environmental and health issues and a systematic depletion of natural resources in secondary material recycling and extracting valuable materials. Electronic waste contains numerous valuable materials that can be recovered and reused to create renewable energy technologies to overcome the shortage of raw materials and the adverse effects of using non-renewable energy resources. Several approaches were devoted to mitigate the impact of climate change. The cooperate social responsibilities supported integrating informal collection and recycling agencies into a well-structured management program. Moreover, the emission reductions resulting from recycling and proper management systems significantly impact climate change solutions. This emission reduction will create a channel in carbon market mechanisms by trading the CO2 emission reductions. This review provides an up-to-date overview and discussion of the different categories of electronic waste, the recycling methods, and the use of high recycled value-added (HAV) materials from various e-waste components in green renewable energy technologies.

Do solar photovoltaic clean development mechanism projects contribute to sustainable development in Latin America? Prospects for the Paris Agreement

Clean Development Mechanism (CDM) projects must include intended contributions to sustainable development in their scope, in addition to promoting the reduction of greenhouse gas emissions (GHG). Previous studies have identified expected co-benefits in CDM projects, nevertheless, they have not focused on solar photovoltaic energy. Although there is high solar irradiation in Latin American countries, there were only 25 registered solar photovoltaic CDM projects. In this study, we examine the intended co-benefits for sustainable development of solar photovoltaic CDM projects in Latin American countries and investigate the climate and energy policies that may have led to the low number of registrations for these projects in the region. The analysis was performed using the T-Lab software program through its Dictionary-Based Classification tool applied to the outlined indicators and criteria. The results indicate gaps in project contributions, for example, the technology transfer was mentioned as equipment and knowledge importation from other countries, which does not imply the development of the local solar industry; community engagement and equal gender opportunities continue to remain challenges, water quality and conservation of biodiversity issues were underscored, and the reducing the overuse competition between cropland and solar panel installation was overlooked. CDM was important to promote diversification in electricity generation in most Latin American countries, but not sufficient to improve the solar photovoltaic market. The main barriers to implementing these projects have been regulation and lack of incentives. The national energy and climate policies in the region should set guidelines/standards for assessing the co-benefits for the sustainable development of GHG reduction projects, aligned with the new carbon market mechanism rules and the UN-Agenda 2030.

Strengthening the complaint mechanisms of multilateral climate funds and carbon markets: A critical step towards a human rights‐based green transition

AbstractNotwithstanding their indisputable benefits, climate change mitigation and adaptation activities can negatively impact the environment and human rights. Accordingly, multilateral funds and programmes financing these activities have increasingly adopted environmental and social safeguards. However, enforcing these safeguards has been difficult because of the lack of or shortcomings affecting complaint procedures provided by multilateral climate finance institutions to individuals and groups negatively impacted by the activities that the institutions support. This article assesses the effectiveness of the complaint procedures of the main multilateral climate funds and carbon market mechanisms; it highlights the limitations of alternative complaint options, including project‐ and implementing entity‐level grievance mechanisms and judicial avenues; and it reflects on the need for effective complaint procedures at the international level to further a human rights‐based green transition.

Optimal reduction and equilibrium carbon allowance price for the thermal power industry under China’s peak carbon emissions target

As the largest source of carbon emissions in China, the thermal power industry is the only emission-controlled industry in the first national carbon market compliance cycle. Its conversion to clean-energy generation technologies is also an important means of reducing CO2 emissions and achieving the carbon peak and carbon neutral commitments. This study used fractional Brownian motion to describe the energy-switching cost and constructed a stochastic optimization model on carbon allowance (CA) trading volume and emission-reduction strategy during compliance period with the Hurst exponent and volatility coefficient in the model estimated. We defined the optimal compliance cost of thermal power enterprises as the form of the unique solution of the Hamilton–Jacobi–Bellman equation by combining the dynamic optimization principle and the fractional Itô’s formula. In this manner, we obtained the models for optimal emission reduction and equilibrium CA price. Our numerical analysis revealed that, within a compliance period of 2021–2030, the optimal reductions and desired equilibrium prices of CAs changed concurrently, with an increasing trend annually in different peak-year scenarios. Furthermore, sensitivity analysis revealed that the energy price indirectly affected the equilibrium CA price by influencing the Hurst exponent, the depreciation rate positively impacted the CA price, and increasing the initial CA reduced the optimal reduction and the CA price. Our findings can be used to develop optimal emission-reduction strategies for thermal power enterprises and carbon pricing in the carbon market.

Research on the Spillover Effect of China’s Carbon Market from the Perspective of Regional Cooperation

After the official launch of China’s unified carbon market, the potential for carbon emission reduction is huge. The pilot regional markets urgently need to be connected with the national carbon market to form a regional synergy and linkage mechanism and further promote the development of a unified carbon market. Spillover effects can be used to analyze the interaction between multiple markets. In this context, this study focuses on the overall spillover relationship among regional carbon trading markets. Using the VAR-GARCH-BEKK model and social network analysis (SNA), this study empirically analyzes the mean spillover effect and volatility spillover effect of regional carbon markets, and it establishes a spillover network between markets. The results show that the spillover effect of China’s regional carbon markets is widespread. Among them, the mean spillover effect is weak, and the impact period is short;. The volatility spillover effect is strong and has various directions; the spillover network connection between regional carbon markets is strong, but the spillover intensity is weak. Spillover effects will spread to the overall carbon market through information spillover paths and risk spillover paths. The stronger spillover effect and the stronger linkage between markets can bring more resource integration and unified supervision. Finally, we put forward policy recommendations, such as improving the carbon market mechanism and enhancing the maturity of carbon market development, increasing the participation and activity of the carbon market to encourage more participants to join the carbon market, improving the institutional system of the carbon market, and effectively supervising the process of information and risk spillover between carbon markets.

Multi-step carbon price forecasting based on a new quadratic decomposition ensemble learning approach

Numerous studies show that it is reasonable and effective to apply decomposition technology to deal with the complex carbon price series. However, the existing research ignores the residual term containing complex information after applying single decomposition technique. Considering the demand for higher accuracy of the carbon price series prediction and following the existing research path, this paper proposes a new hybrid prediction model VMD-CEEMDAN-LSSVM-LSTM, which combines a new quadratic decomposition technique with the optimized long short term memory (LSTM). In the decomposition part of the hybrid model, the original carbon price series is processed by variational mode decomposition (VMD), and then the residual term obtained by decomposition is further decomposed by complete ensemble empirical mode decomposition with adaptive noise (CEEMDAN). In the prediction part of the hybrid model, least squares support vector machine (LSSVM) is introduced, and LSSVM-LSTM model is constructed to predict the components obtained by decomposition. The empirical research of this paper selects two different case data from the European Union emissions trading system (EU ETS) as samples. Taking the results of Case Ⅰ in the 1-step ahead forecasting scenario as an example, the prediction evaluation indexes eMAPE, eRMSE and R2 of the VMD-CEEMDAN-LSSVM-LSTM hybrid model constructed in this paper are 0.3087, 0.0921 and 0.9987 respectively, which are significantly better than other benchmark models. The empirical results confirm the superiority and robustness of the hybrid model proposed in this paper for carbon price forecasting.

Sustainability, emission trading system and carbon leakage: An approach based on neural networks and multicriteria analysis

Two transitions, green and digital, are changing the operations and strategies of industrial systems. At the same time, businesses are challenged to be globally competitive. Europe has a very ambitious agenda as it aims to be the first climate-neutral continent in 2050. The european emissions trading scheme (EU ETS) has proven to have facilitated the reduction of significant amounts of greenhouse gas emissions, but the risk of carbon leakage is present. This work seeks to explore these issues and their relationships. Through the use of a long short-term memory (LSTM) neural network, a model is built to determine the price of european union allowance (EUA) as a function of different financial energy futures. The results show that the model is very robust and the EUA tends to vary between 78 and 91 €/tCO2. In addition, a multi-criteria decision analysis (MCDA) is applied to identify the best policy alternatives to enable businesses subject to the EU ETS to be competitive in global markets. The analysis is carried out with the help of academic and industrial experts and it emerges that the criteria considered most relevant are two: (i) public expenditure and its expected benefits and (ii) the industrial ecosystem. The policy implications identify that bonuses should be provided to businesses for innovative solutions that protect both the energy and raw material components. The framework of the 3E (Energy Efficiency, Renewable Energy, and Circular Economy) are critical to businesses' long-term strategies, flanked by digital development.

Sustainable development in agriculture with a focus on decarbonization

This article examines sustainable agriculture's core objective: reducing environmental impact while ensuring continuity in food production. It distinguishes agroecology from sustainable agriculture and organic food production. The feasibility of sustainable organic food production in controlled settings is explored, especially for animal farming. The paper underscores agriculture's substantial greenhouse gas (GHG) emissions and the pressing need for action. It discusses the intricate relationship between agriculture and climate change, emphasizing the challenges in meeting emission reduction targets within the sector. In this article, Carbon Capture Storage (CCS) is explored as a viable method to reduce agricultural emissions. Additionally, EU policies such as the Carbon Border Adjustment Mechanism (CBAM) and EU Emissions Trading System (EU ETS), are designed to align agriculture with climate objectives. Integrating agriculture into CBAM presents challenges due to the absence of a carbon pricing mechanism. EU's policies and EU's CBAM in this paper are given just a good decarbonization model that can be implemented worldwide. Balancing environmental preservation, economic stability, and international relations is complex in agriculture, as a significant emitter of GHGs. Innovative strategies like Agricultural Sector Management and Carbon Absorption offer promise in reducing agricultural emissions. This study employs a triangulation approach and contributes significantly to the field of sustainable agriculture. It explores various aspects of sustainable agriculture, tackles challenges related to climate change, and presents decarbonization strategies. These findings have relevance for all who are involved in agriculture and environmental sustainability.

Impact of EU allowances cost on the financial results of Polish power companies

Purpose: The aim of the article is to estimate the impact of the EU Allowances price increase on the financial results and return on investment in the portfolio of shares of four listed power companies, i.e., Enea S.A., Energa S.A., PGE Polska Grupa Energetyczna S.A., and TAURON Polska Energia S.A. Design/methodology/approach: Financial analysis of energy groups. Statistical analysis, a linear regression model with 6 independent variables and the dependent variable, i.e., the return on investment in the portfolio of shares of the analyzed companies. The studies cover the years 2016-2021. Findings: The results of the financial analysis show that the analyzed energy groups did not always could include increased operating costs in the price of energy sold in 2016-2021? The linear regression analysis did not indicate that the decrease in the profitability of investments in the shares of the surveyed companies can be explained by the increase in the prices of EU Allowances. Research limitation/implications: The inability to determine the unequivocal impact of the EU Allowances price increase on the financial results and share prices of the considered companies can be explained by the number of operating segments in the energy groups, the outbreak of the COVID pandemic and negative GDP in 2020, and the "upward rebound" of the economy after the pandemic and high GDP in 2021. Practical implications: The analysis is useful for shareholders of electricity companies and politicians who create regulations concerning the Polish energy policy. The results of the study are useful to all stakeholders of electricity companies. Social influence: The high costs of EU Allowances affect electricity prices for the Polish society and prove very high CO2 emissions when producing electricity in Poland. Originality/value: The conducted financial analysis and regression analysis are one of the first attempts to indicate the impact of the increase in the cost of CO2 emission allowances on the financial results and share prices of Polish energy companies. The article contributes to reducing the research gap existing in Polish literature in this area. Keywords: power companies, EU Emissions Trading System, EU Allowances (EUA), regression analysis. Category of the paper: research paper.

Has the EU Emissions Trading System been effective?

Has the EU Emissions Trading System been effective?