EU ETS Research Articles

The marginal abatement cost of co-producing biomethane, food and biofertiliser in a circular economy system

Biomethane from anaerobic digestion of agricultural feedstock is a versatile energy vector for decarbonising agriculture, heavy transport and heat. To lower costs and increase the emission-savings potential, photosynthetic biogas upgrading, cogenerating microalgae with biomethane is investigated here. In a first-of-its-kind work, this paper reports the enviro-economic performance and the marginal (CO2) abatement cost (MAC) of a polygeneration plant co-producing energy (biomethane), food (Spirulina powder) and bio-fertiliser (digestate) from agricultural feedstock using photosynthetic biogas upgrading at small, medium, and industrial scales. A negative MAC at industrial scale (3 MW biomethane), highlighted the environmental and economic benefit (net present value > 11.5 million€ and internal rate of return >40%) of the process as a low-carbon technology over conventional biomethane production processes at a biomethane sale price of 3 c€/kWh (comparable to natural gas). The operational expenditure, including the cost of the Spirulina cultivation medium and the plant capacity factor had the highest influence on its profitability. Replacing beef as a complete food with Spirulina powder maximised the emission savings rather than replacing beef protein with Spirulina protein. Economic allocation as opposed to energy allocation ensured that the levelised cost and specific greenhouse gas emissions of biomethane (<5 c€/kWh; < 3.5 gCO2-eq/MJ), Spirulina powder (<68 €/kg; < 4 kgCO2-eq/kg) and digestate (<5.60 €/tonne; < 0.41 kgCO2-eq/kg-nitrogen) are better than market-available alternatives across all scales. Trading emission savings from biomethane in the European Union emission trading system should allow the financial viability of smaller-scale processes by 2030.

Energy Transitions: The Case of Greece with a Special Focus on the Role of the EU ETS

Major energy transitions are associated not only with fundamental transformations of the energy sector but also with multidimensional changes in societies. Existing energy systems are heavily implicated in climate change. This paper investigates from an ecosocialist perspective the prevalent high-carbon energy systems in capitalism and their ongoing transformations, with a special focus on Greece as an EU member. Furthermore, it explores whether the EU ETS, in comparison to renewable energy sources (RES) support schemes, created considerable incentives for effective and socially fair transitions to low-carbon systems. Empirical data reveals the enduring high-carbon composition of gross inland energy consumption in Greece while evidence on gross electricity generation by fuel discloses the limited penetration of RES since 1990. The neoliberal design of ETS at the EU level and its poor workings did not induce investments in low carbon technologies. RES support policies have been more significant. However, both have adverse distributional effects, especially on working people since the latter bear the cost of transition for the most part. Effective and fair low-carbon energy transitions need radical social transformation — an ecosocialist path out of capitalism.

Spillover effects among crude oil, carbon, and stock markets: evidence from nonparametric causality-in-quantiles tests

ABSTRACT This study investigates the spillovers and information transmission between carbon, crude oil, and stock markets under various market conditions in Phase III of the EU ETS. For this purpose, we use a novel causality-in-quantiles test method and quantile impulse response functions based on daily data of carbon futures, Brent spot, and three representative equity indices in the Europe over the period from 27 January 2014 to 18 September 2020. We find that crude oil market has a unidirectional spillover effect on carbon market, and this causality is significant under normal to bullish market conditions. Furthermore, the causality-in-quantiles between crude oil and stock markets varies with specific equality index, and the information transmission from crude oil to stock market is strong in the normal stock market but invalid when stock markets become extremely bearish or bullish. The COVID-19 epidemic may cause structural changes in the oil-carbon and oil-stock nexus.

REDUCING CLIMATE IMPACTS ON WATER RESOURCES AS THE LEGAL AND ECONOMIC BASIS FOR ENVIRONMENTAL SECURITY IN THE EU CANDIDATE COUNTRIES: THE CASE OF UKRAINE

As climate change is one of the greatest challenges of our time, the legal and economic issues of global environmental security deserve high praise. In the area of industrial competitiveness, where the negative effects of global climate change include floods and droughts, forest fires, and rising sea levels, climate change is highly problematic. Climate impacts affect public and private agricultural infrastructure (including the coastal zone), resulting in lost productivity and increased costs for agriculture. The article applies climate change on a global scale in the form of greenhouse gas (GHG) emissions to determine how the mixtures and emissions of any one entity affect other areas (e.g., individual, community, company or country emissions). Exploring the theoretical and practical premises of climate change as a complex phenomenon, the novelty of this article is that it examines the current framework of the environmental-legal concept, not just the political implications of the legal framework. The research aim of the article lies in two dimensions: the European Union's current climate change policy framework (the climate and energy package, a set of climate change strategies and related policies targeting EU candidate countries); recent environmental operations in Ukraine as an EU candidate country under extraordinary conditions. This article examines recent changes in climate legislation and climate policy in EU member and candidate countries, as well as other highly developed countries, such as the United Kingdom, the United States, and China. Focusing on the impact of the EU Climate and Energy Package (2020 and 2030), this article examines the main implications of EU climate legislation regulating the EU Emissions Trading Scheme and promoting the role of renewable energy in global energy consumption and energy efficiency in general. As a result of this study, this analysis offers multifaceted conclusions based on the interaction of a number of current administrative acts on climate change and environmental policy on a global scale.

The Impact of Economic Factors on the Sustainable Development of Energy Enterprises: The Case of Bulgaria, Czechia, Estonia and Poland

The sustainable development of enterprises is based on three pillars: economic, social, and environmental. Sustainable development aims to limit climate change and its negative impact on the natural environment. The main aim of this paper is to assess the impact of selected energy economy factors (government expenditure, environmental taxes, outlays on renewable energy sources, prices of futures contracts for CO2 emissions, outlays on R&amp;D, and the EU Emissions Trading System (ETSEU)) on the sustainable development of the energy sectors in Bulgaria, Czechia, Estonia, and Poland, from 2008 to 2022. We use the correlation coefficients, the Ordinary Least Squares (OLS), Vector Autoregressive (VAR) Models, and the simultaneous equation. The research results indicate a variation in the direction and strength of the influence of individual economic factors in the studied countries (p &lt; 0.05). The results can support operational and strategic decisions sustaining the sustainable development of enterprises in the analyzed countries. The results indicate the need to reform selected economic factors, with an emphasis on the increased importance of environmental taxes and the reform of the EU ETS, which is a key tool for reducing greenhouse gas emissions cost-effectively.

Does the European Union energy policy support progress in decoupling economic growth from emissions?

This study investigates the impact of the European Union (EU) energy policy on decoupling economic growth from emissions in the EU countries in the period between 1995 and 2017. The following three types of greenhouses gas emissions are considered in the study: emissions covered by the EU Emissions Trading System (EU ETS), production-based emissions (PBA), and consumption-based emissions (CBA). Decoupling emissions from the output is assessed in the successive phases of the EU ETS for trend components in the long run and for cyclical components in the short run.The results obtained reveal an ambiguous role played by the EU energy policy in long-term decoupling. On the one hand, there has been progress in decoupling economic growth from emissions covered by the EU ETS and production-based emissions in the EU-15 and in the new EU countries. On the other hand, in the case of consumption-based emissions, no progress has been recorded in both groups of countries. The results confirm a significant difference between the EU-15 and the new EU countries only when long-term decoupling is considered. The negative relationship between emissions covered by the EU ETS and production-based emissions and output is much stronger in the EU-15 countries than in the new EU countries.

Research on Closed-Loop Supply Chain Decision Making and Recycling Channel Selection under Carbon Allowance and Carbon Trading

The massive emission of carbon dioxide and other greenhouse gases has begun to threaten the survival of human beings and the balance of the Earth’s ecology. If carbon emission is left unchecked, we will face terrible consequences. Closed-loop supply chain operation is an effective way to improve economic and environmental benefits at the same time. This paper attempts to study the decision-making and recycling channel selection of CLSC under carbon allowance and carbon trading policies. This paper constructs a closed-loop supply chain consisting of a manufacturer, a retailer and a third-party recycler, and uses the Stackelberg game-theoretic method to decide variables such as the product price and recycling rate of CLSC under three recycling models. Through the analysis and comparison of the manufacturer’s profit of and the carbon emissions in different models, the following conclusions are drawn. (1) When the manufacturer recycles WEEE, the supply chain obtains the most profit. (2) When the retailer recycles WEEE, the carbon emissions of the supply chain are lowest. (3) The manufacturer tends to choose the M model, which is the manufacturer recycling model. The T model and the R model have little difference in carbon emissions. For easier management, the government prefers to choose the T model, which is the third-party recycler recycling model.

Does the carbon trading mechanism affect social and environmental benefits of the retailer-led supply chain: Strategic decisions of emissions reduction and promotion

Governments, enterprises, and customers have become more concerned about environmental protection. Following the world’s largest carbon trading market (EU ETS), China has also implemented a market-based carbon trading mechanism (CAT) to reduce CO2. Simultaneously, customers have low-carbon preferences for environmental products. Thus, the enterprises’ strategic decisions and collaboration modes have changed. This article develops the Stackelberg game model to explore the impacts of CAT and customers’ low-carbon preference on the carbon emission reduction and promotion strategies in a retailer-led supply chain (such as RT-Mart, Walmart, Amazon, etc.). In this model, the retailer decides whether to promote environmentally safe products and the manufacturer decides whether to reduce CO2. We find that carbon trading market price and customers’ low-carbon preference are key factors influencing the retail price, total carbon emissions, and social welfare. Interestingly, there is not always a positive correlation between customers’ low-carbon preference and social welfare. To achieve Pareto improvement of social welfare, manufacturers and retailers require co-optimization. Theoretically, our research enriches the research streams of the CAT policy and socially responsible operations of the supply chain. Moreover, managerial insights are provided for retailer-led supply chain stakeholders and emission reduction regulators, which contribute to enhancing the social and environmental benefits of the supply chains.

Multi-Time Scale Rolling Optimization Scheduling of “Nealy-Zero Carbon Park” Based on Stepped Carbon Allowance Trading

Aiming at the self-government capacity and multi-time scale energy regulation requirements of “Nearly-zero Carbon Park” (NZCP) under the background of “dual carbon goals” and energy Internet, a day-ahead-intraday rolling optimization scheduling method for NZCP based on stepped carbon allowance trading is proposed. First, the energy supply and demand characteristics of liquid-storage Carbon Capture Gas-fired Power Plants (CCGPP) and Power-to-Gas (P2G) equipment are studied, and a combined system model of CCGPP and P2G is established that takes into account the low-carbon emission requirements of NZCP, and waste pyrolysis power generation facilities and manure treatment facilities are introduced to form a Waste Utilization system (WU) to provide energy support for the power grid and gas network. Second, the carbon allowance offset and low-carbon benefit gains of NZCP are considered, a compensation coefficient is introduced to guide the low-carbon behavior of carbon emitters, and a ladder carbon allowance trading model is established. Then, the influence of the source-load prediction error on the optimal scheduling at different time scales is considered, and a two-stage unit output plan is established. Then, the influence of the source-load prediction error on the optimal scheduling at different time scales is considered, and a two-stage unit output adjustment plan is established. The calculation example results verify that the proposed day-ahead-intraday rolling optimization scheduling model for NZCP can effectively reduce system carbon emissions while reducing system operating costs, and the efficient integration of economic and environmental benefits is achieved.

The creative response of energy-intensive industries to the Emissions Trading System in the European Union

There is a broad consensus on the contribution of the so-called eco-innovations to the sustainability transition of economic activity and on the power of policy instruments to redirect innovation towards solving environmental challenges over time. However, despite remarkable academic efforts in this direction, there is a shortage of studies empirically analysing the link between environmental policy and innovation activities. Using firm-level data gathered from the Community Innovation Surveys of two specific years, 2008 and 2014, from eleven European countries, we apply a difference-in-difference approach to provide a clear-cut test of the effects of Phase III of the EU's Emissions Trading System on low-carbon innovations of energy-intensive firms. Our results suggest that environmental policy may affect firms' environmental performance by improving eco-innovating efforts. In fact, the new environmental policy not only induced an adaptive response, in which firms adjust their level of emissions to this new cost scheme, it also induced a creative response, leading companies to move outside of the range of their existing practices.

A Study of the Endowment Effect in Phase II and III of the EU Emissions Trading System

This paper investigates the endowment effect in the European Union Emissions Trading System (EU ETS) over Phase II and Phase III using complete transaction records from the market. The results show that for most companies in both Phase II and Phase III, their WTA (willingness to accept)/WTP (willingness to pay) ratio is less than or equal to 1, signifying that there is an insubstantial degree of the endowment effect in the EU ETS. This challenges the results of a pioneering study and brings into light the need for a more rigorous study to re-examine the endowment effect in the carbon market.

Decarbonising short sea shipping operations: examining the efforts and outcomes of a Finnish shipping line’s relevant initiatives

Decarbonisation of maritime transport operations has become a main priority for shipping companies around the world, especially after the adoption of the Initial International Maritime Organization’s (IMO) Strategy on Reduction of Greenhouse Gas (GHG) Emissions from Ships in 2018 that sets the goal of reducing the global shipping emissions by 50% by 2050, as compared to 2008. In a similar direction, the European Union’s (EU) Green Deal initiative was adopted in December 2019 and proposed, among others, the inclusion of shipping in the EU Emissions Trading Scheme (EU ETS) as an additional tool for the achievement of climate neutrality in Europe by 2050. The most recent UN Climate Change Conference (COP26) that was held in Glasgow also increased the momentum for global decarbonisation efforts highlighting the important role and contribution of maritime transport in these overall efforts. This paper discusses the efforts and initiatives undertaken by a Finnish shipping line (Viking Line) for the improvement of its fleet energy efficiency, along with the decarbonization of its operations; initiatives that encompass various technical and operational measures along with the employment of alternative fuels and/or energy sources (such as wind power). According to the findings, significant energy consumption reductions can be achieved at the company level from the implementation of a number of energy efficiency initiatives that presuppose a company organization model focused on sustainable development. Global and regional regulations/ guidelines definitely initiate the introduction of energy efficiency measures, but their effective implementation depends largely on the organizational structure and priorities of individual shipping companies.

The relationship between carbon-intensive fuel and renewable energy stock prices under the emissions trading system

In this study, we analyze the relationship between the price of carbon-intensive fuel and the stock prices of renewable energy companies, incorporating the price of carbon in the European Union emissions trading system (EU ETS). Specifically, we employ wavelet methods to reconstruct time series with specific levels of persistence, reducing noise, trend, and seasonal components. Using these wavelet-adjusted series, we conduct a regression analysis that considers exogenous factors that may influence the demand for electricity and emissions allowances. Subsequently, we estimate vector autoregressive models and obtain a connectedness measure and impulse response functions. The results consistently imply that increases in coal prices have (counterintuitively) a negative effect on renewable energy stock prices. Moreover, we show that this can be explained by a negative relationship between coal and carbon prices and a positive relationship between carbon prices and renewable energy stock prices. Our study contributes to the literature by uncovering the negative relationship between the price of carbon-intensive fuel and renewable energy stock prices by applying a suitable filtering procedure.

Carbon price floors and low-carbon investment: A survey of German firms

Introducing a price floor in emissions trading schemes (ETS) theoretically stabilizes expectations on future carbon prices and thus fosters low-carbon investment. Yet, ex post evidence on high carbon prices is scant and the relevance of carbon pricing for investment decisions is frequently contested. We provide empirical ex ante evidence on how a price floor in the EU ETS would impact the size and portfolio of energy firms’ investments. Analyzing survey responses of high-level managers in 113 German energy and industry companies, we find that the level of the price floor is crucial. A low price floor trajectory only provides insurance against downward price fluctuations and would leave investments largely unchanged except for industries receiving electricity price compensation, which reduce their investments. A high floor, significantly increasing the price level beyond current expectations, leads to higher investment by the majority of firms, especially by green firms, while investment in fossil energy would partially be abolished. Our studies implies that price floors can be important design components of ETS. However, policymakers need to ensure that they are at sufficiently high levels to affect investment decisions in a meaningful way.

Evaluating the efficiency of global airlines: A new weighted SBM-NDEA approach with non-uniform abatement factor

Over the past decade, issues related to environmental controls in the airline industry have arisen, attracting increased attention from policy and decision makers. Several global initiatives, including the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) and the European Union Emissions Trading System (EU-ETS), have been proposed to reduce carbon dioxide (CO2) emissions. As passenger numbers grow, airlines could become one of the largest contributors to global warming. In practice, airline operations involve a series of network processes, and these processes can be grouped into two subprocesses: a) production and b) airline services. Based on our literature review, only a few studies have examined the efficiency of airlines using network data envelopment analysis (NDEA) instead of the conventional data envelopment analysis (DEA) framework (also known as the black-box approach). In addition, the traditional treatment of undesirable outputs (e.g., CO2 emissions) in the DEA approach involves the use of a single abatement factor to reduce both undesirable and beneficial outputs. Performance assessment using this weakly disposable Shephard technique may overestimate the technical efficiency of the evaluated units. The main objective of this study is to investigate the performance of the two subprocesses of global airlines by incorporating CO2 emissions using multiple abatement factors based on the Kuosmanen technology. To capture different airline groupings, we use a network DEA model to estimate the technical efficiency of global airlines in alliance and non-alliance groups. A sample of 29 global airlines in 2018 is used in the study. The results reveal that the main source of overall technical inefficiency of most airlines is scale inefficiency in both production and airline services.

Supply-chain sustainability under the EU system of carbon pricing and trading

As global climate change continues, policymakers at various levels of government have taken up the great challenge of decarbonisation and adopted tools to help reduce greenhouse gas emissions. Environmental policy, including climate policy, is explicitly aimed at promoting environmental protection and conservation, but it also carries economic and social effects. Academic interest in sustainable supply chains has grown significantly in recent years. Social aspects, as well as the integration of the three dimensions of sustainability, are still rare. The purpose of this study is: (1) to review the most recent literature on greenhouse gas emissions policies, particularly pollution taxes and pollution rights trading schemes; (2) to investigate the European Union Emissions Trading System (EU ETS) with a focus on market and price development; (3) to identify possible effects of this system on supply-chain sustainability; (4) to offer inspiration for further research into the links between the EU ETS and sustainable development of the supply chain. The article concentrates on the impact of the cap-and-trade scheme on the three pillars of sustainable development: the environmental, economic and social dimensions. The findings of this study prove that this scheme has significantly affected not only upstream regulated sectors, but also downstream companies in the supply chain as well as households. In addition, our investigation suggests the presence of trade-offs between the environmental (climate) and socio-economic goals of sustainable development as a result of applying the EU ETS.

Spatial spillover effect of carbon emission trading policy on carbon emission reduction: Empirical data from transport industry in China

Carbon emission trading policy (CETP) is an important tool for energy-savings and emission reduction. Currently, the spatial spillover effect of CETP on carbon emission reduction in transport industry is still unknown. To fill this gap, this paper employs a spatial econometric model (SEM) to estimate the spillover effect of CETP on traffic carbon emissions, and further discusses the boundary effect of spatial spillover. Additionally, this paper established a spatial mediating effect model to investigate the transmission mechanism of CETP in reducing traffic carbon emissions, and further discussed the impact of government intervention in carbon emissions trading market. The results showed that CETP had a significant effect on cutting down the traffic carbon emissions in the pilot areas, and that there existed a spatial spillover effect. Moreover, near the threshold of 250 km–650 km, the spillover effect was strongest. Excessive government intervention will cause the carbon market mechanism to fail, which will be bad for reducing traffic carbon emissions. The CETP can promote the traffic carbon emissions by improving the technical research level (Tech) and energy consumption structure (TES). The purpose of this paper was to provide decision-making suggestions for the government to improve and perfect the carbon emission trading mechanism and realize the carbon neutrality of transport industry as soon as possible.

Multiple price bubbles in global major emission trading schemes: Evidence from European Union, New Zealand, South Korea and China

Emission trading scheme (ETS) is a flagship climate governance tool to achieve social minimum cost emission reduction target through market mechanism. If price bubble exists in the ETS, the achievement of emission reduction target and the resolution of market risks will be negatively impacted. This paper is one of the few, if not the first, to examine whether price bubble exists in fluctuating carbon prices in the global ETSs. In this study, supremum augmented Dickey–Fuller (SADF) and generalised SADF (GSADF) are adopted to statistically test the existence of price bubbles from the opening date to August 31, 2019 in the four ETSs in European Union, New Zealand, South Korea and Shenzhen of China. The time, frequency, severity and reasons of the emergence and termination of price bubbles in each carbon market are also analysed in detail. Results show that, 1) From the perspective of duration, significant differences exist in the duration of price bubbles amongst the four carbon markets. The price bubbles of European Union (EU), New Zealand and South Korea ETSs last for a long time, and most of the price bubbles last for >5 days. The price bubbles in Shenzhen ETS last for a short time, and the duration of all price bubbles does not exceed 3 days. 2) In terms of quantity, 8, 9, 3 and 4 price bubbles are detected in the four carbon markets in EU, New Zealand, South Korea and Shenzhen of China, respectively. 3) With regard to severity, price bubbles in EU ETS are the most serious. The main reason is that the industries being covered are the widest and the participating countries are the most in EU ETS, so EU ETS is easily impacted by industrial changes and policy adjustments in various countries. 4) The problems on price bubbles in the four ETSs are mainly closely related to macro economy, new and renewable energy, energy price and carbon market-related policies.

The influence of environmental regulation on the FDI location choice of EU ETS-covered MNEs

This paper explores how cross-country differences in environmental regulatory stringency among member states of the world's largest multinational cap-and-trade system, the European Union Emission Trading Scheme (EU ETS), influenced the FDI location choice of listed multinationals (MNEs) regulated by the environmental policy. After controlling for other country characteristics driving FDI location choice, we find that the likelihood of EU ETS-covered MNEs locating new FDI projects in less environmentally stringent member states strongly depends on firm- and industry-specific environmental characteristics during the system's first two phases. Our results are robust to different measures of environmental stringency and provide evidence for the existence of an intra-regional pollution haven effect (PHE). This investment behavior by MNEs is, moreover, only found in the industries least compensated for the environmental costs induced by the policy. This suggests that the EU inadvertently promoted an intra-regional PHE not only by allowing cross-country variation in environmental stringency but also by overly focusing on and compensating for external carbon leakage risk. Our conclusions have major implications for countries and regions currently establishing or implementing an emissions trading system.

Design of a Cooperative Sustainable Three-Echelon Supply Chain under Uncertainty in CO2 Allowance

Driven by the growing concern regarding greenhouse gas emissions, in this work, we provide a robust stochastic model for the design of a cooperative supply chain (SC) under uncertainty in CO2 allowance prices from the European Union Emissions Trading System (EU ETS). During the last years, CO2 allowance prices have undergone unexpected changes, having strong impact on the design and management of optimal SC. The consideration of uncertainty in the allowance prices has therefore become more important. We use an autoregressive integrated moving average (ARIMA) model to predict future allowance prices. A full discretization of the underlying probability space leads to a number of scenarios far too large to be handled, so we compare two approaches to reduce the number of scenarios to a feasible maximum, the ScenRed algorithm and K-means clustering. The obtained results are compared with a deterministic approach that is widely studied in the literature, showing an increase in the benefits and a reduction of emissions.