EU ETS Research Articles

Tax, kill or bill: An analysis of unilateral CO2 price floor options in multilateral emissions trading systems

As more governments consider minimum domestic CO2 prices, we investigate three unilateral options for jurisdictions operating within a multilateral emissions trading system (ETS): 1) an additional CO2TAX; 2) an auction reserve policy to KILL (invalidate) allowances; and 3) an overcompliance requirement to BILL domestic emitters for extra allowances per ton of emissions. We assess three main economic incentives for unilateral action: environmental benefits, fiscal benefits, and terms-of-trade gains. We derive theoretically optimal unilateral price floors and, based on numerical simulations for the EU ETS, illustrate how a national government's preferred strategy depends on how it values fiscal versus environmental benefits.

The prospects for, and implications of, emissions trading in shipping

The decarbonisation of shipping has become a high priority on the environmental and political agenda. The prospect of implementing an Emissions Trading System (ETS) for shipping has come to prominence as a proposed mechanism for speeding up the decarbonisation of the industry, with the EU taking proactive action to include shipping within the EU ETS by 2023. This paper analyses and provides a qualitative review of the historical development of the discussions and actions taken at both global level (by the International Maritime Organization (IMO)) and at regional level within the EU. A SWOT analysis of the potential implementation of an ETS for shipping is then presented. The paper concludes that an ETS for shipping can incentivise greater investment in, and deployment of, green technologies that will have the effect of reducing the carbon footprint of the shipping industry. However, the speed and significance of this effect will depend upon the specific shipping market segment and the relative stage in shipping market cycles over time. It is further concluded that despite the imminent unilateral introduction of shipping into the EU ETS, it is important that the IMO continues its work to develop a global ETS that promotes a ‘level playing field’ for competition within the sector and eliminates the risk of carbon leakage.

Multi-step carbon price forecasting using a hybrid model based on multivariate decomposition strategy and deep learning algorithms

Accurate prediction of carbon price effectively ensures the stability of the carbon trading market and reduces carbon emissions. However, making accurate prediction is challenging because the carbon price is highly nonlinear and nonstationary due to complex influential factors. Thus, we propose a multifactorial hybrid forecasting framework, ET-MVMD-LSTM, to integrate three advanced algorithms for a reliable multi-step ahead prediction of the carbon price. First, extremely randomized tree (ET) is used to determine the optimal input variables for the modeling to follow. Then, multivariate variational mode decomposition (MVMD) is executed to simultaneously decompose the screened input variables into relatively regular sub-modes, which reflect characteristics at different scales. Subsequently, long short-term memory (LSTM) with a stable forecasting ability is employed to model each mode individually to effectively extract the long-term trend and short-term fluctuation features. The final forecast is reconstructed by the ensemble of the predictions of all sub-modes. Last, systematical studies on two European Union Emissions Trading Scheme carbon price datasets indicate that the proposed ET-MVMD-LSTM framework outperforms several advanced baseline models in terms of accuracy and stability, which prove the framework is deemed promising and practical for carbon price prediction.

Research on Day-Ahead Optimal Scheduling Considering Carbon Emission Allowance and Carbon Trading

In the context of the marketization of carbon trading in the power system, it is of great theoretical and practical significance to study a scientific and effective carbon emission quota allocation strategy. To solve this problem, under the current situation of large-scale access to new energy, considering the limitations of the carbon emissions from different emission subjects plus the construction of a carbon trading model among the emission subjects, a day-ahead optimal scheduling method that takes carbon emission quotas and carbon trading into account is proposed. Firstly, carbon transaction cost models of thermal power and wind power are constructed, respectively, and a carbon emission quota allocation strategy based on the entropy method is proposed to redistribute the weights of baseline emission factors for the regional power grid. Then, considering the additional carbon emissions of conventional thermal power units caused by wind power access, the carbon trading costs of different types of generation units are calculated on the basis of carbon trading price prediction. Thereafter, a day-ahead optimal scheduling model considering carbon emissions trading is constructed with the objective of minimizing the total cost of the system in the scheduling period. The model is solved as an MINLP problem based on MATLAB 2016a software utilizing CPLEX 12.4. Simulation results verify the correctness and effectiveness of the proposed method.

Speed and Fuel Ratio Optimization for a Dual-Fuel Ship to Minimize Its Carbon Emissions and Cost

In this study, nondominated sorting genetic algorithm II (NSGA-II) was used to minimize the cost and carbon emissions of a liquefied natural gas (LNG) dual-fuel ship for a given route. This study considered the regulations of emission control areas (ECA) and the European Union (EU) Emissions Trading System (ETS) to determine the optimal speed and LNG/oil ratio for the ship. NSGA-II used the arrival time at each port and the LNG usage ratio for each voyage leg as its genes. The time window for arrival, the fuel cost, and potential EU carbon emission regulations were used to estimate the cost of the considered voyage. Moreover, fuel consumption was determined using historical data that were divided by period, machinery, and voyage leg. The results indicated that the optimal speed and fuel ratio could be determined under any given fuel and carbon price profile by using NSGA-II. Finally, the effects of regulations and carbon price differences on the optimal speed and fuel ratio were investigated. The cost minimization solution was susceptible to being affected by the regulations of ECAs and the EU ETS. The speed profile of the cost minimization solution was found to have a tendency to travel at faster-than-average speeds outside ECAs and non-EU regions, and travel slower in ECAs and EU regions. Meanwhile, the selection of fuel type showed that 100% traditional fuel oil in all regions, but with sufficiently high EU carbon permit cost, tends to use 100% LNG in EU regions.

Flue gas condensation of solid fuel fired heating plant

In the Czech Republic, increasing trend exists in utilization of biomass as a fuel in heating and power plants. This is preferred solution by EU Climate plans, and it is connected with some economic benefits (e.g. green bonuses, guaranteed purchase price), on the other hand the combustion of fossil fuels is penalized (EU ETS – Emission Trading System). There are many types of biomass with different parameters but one of the most discussed are wooden resides because of its quantity. There are big differences between quality parameters, especially in moisture content, which is decreasing the LHV. There are some technologies which can decrease moisture. Dryer technologies could be simple so-lution, but final decreasing of moisture is quite low. More effective is application of flue gas condensation. This technology is well known for gas-fired boilers but nowa-days is still more often build by new solid fuels-fired plants. This deals with design of condensation technology for existing heating plant in Mladá Boleslav. The fuel mixture is based on wood residues (70 %) and pelletized plant biomass (30 %). The calculation was done for three boilers for soild fuels – two same CFBs (steam production 100 t·h-1) and one BFB (steam production 80 t·h-1). Moisture content was calculated for two cases of wooden residues with moisture content 35 and 50 %. System of condensation include three step water scrubber, heat ex-changer, heat pump and humidifier of combustion air. The final designed output of unit for BFB is 12.7 MW (19 MW for each CFBs), but from these the output of heat pump is 5 MW (7.5 MW). The source of heat for heating pumps is steam, which can be used in current heater, so the final net output from condensation is 7.7 MW (11.5 MW). These parameters are only for 50 % of moisture content in wooden residues. The application of these system is not cost-effective for moisture content of fuel around 35 %. It is possible to build this technology for 50 % of fuel moisture content, but technology will not raise the temperature parameters of hot water. There are two differences between Mladá Boleslav heating plant and Finnish Vuosaari power plant in Helsinky, where the similar unit is already built. First of them is moisture content of fuel more than 50 %. Second one is temperature of hot water system 60 °C, however in Mladá Boleslav is at least 80 °C, sometimes it could be more than 110 °C. The decreasing of this temperature is problem because the most of heating systems were designed by current standards with temperature 80 °C. The only possible solution is to build two steps scrubber and the waste heat utilize as preheater of hot water.

Correction: Cheng, Y. Carbon Derivatives-Directed International Supervision Laws and Regulations and Carbon Market Mechanism. Sustainability 2022, 14, 16157

The author would like to make the following corrections about the published paper [...]

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.