EU Carbon Emission Research Articles

Current trends in carbon emission trading: Theoretical perspectives, research methods and emerging themes

Since the inception of the EU carbon emissions trading market, it has experienced substantial growth. However, there is a shortage of comprehensive analysis on the policy implications of carbon emissions trading in the context of the low-carbon economy. The article utilizes bibliometric and content analytic methodologies to thoroughly examine the features and content of 116 relevant pieces of literature. Based on this analysis, a research model on the carbon emissions trading schemes is constructed. The study findings indicate a significant surge in the quantity of published material since 2021, with a predominant focus on terms related to the low carbon economy, such as environmental regulation and carbon emission. The research hotspots are related to transformation and upgrading and enterprise performance, etc. The research theory involves compliance cost theory, Porter's hypothesis theory, emissions trading theory and green innovation theory, empirical research is the main method of carbon emissions trading research. Emerging theme analyses are summarized in terms of the economic, environmental, technological and social effects of carbon trading. Finally, there are research conclusions and future research trends.

The Reform of the EU Carbon Emission Right Trading Legal System and Its Enlightenment to Our Country

The EU carbon emissions trading mechanism is the most mature, the most demonstration effect of emissions trading mechanism, its legal system in ten years of operation, the third stage of reform is particularly significant, including regulatory mechanism, total limit and initial distribution mechanism, registration system, monitoring, reporting and verification mechanism, etc. At present, the legislative level of carbon trading in China is not high, and it lacks operability. In-depth analysis of the reasons, mechanism and main system of EU reform can provide important enlightenment for China. When building a national carbon trading market, China should learn from the experience of the European Union, improve the legislative system, and promote the construction of key systems.

Accounting for Carbon Pricing in Third Countries Under the EU Carbon Border Adjustment Mechanism

Abstract To avoid penalizing exporters that already paid carbon prices, the EU Carbon Border Adjustment Mechanism credits carbon taxes and Emissions Trading Schemes in third countries. By excluding instruments of traditional regulation (e.g. emission standards) and indirect carbon prices (e.g. fuel excise taxes) from this crediting mechanism, the EU is criticized for discriminating against countries that do not follow its climate model, in breach of international trade and climate law. This article seeks to nuance this criticism by arguing that the calculation of actual emissions (instead of default values) under the EU CBAM allows exporters to reflect compliance with foreign emission standards, and thus respects states' right to pursue emission reductions through traditional regulation. However, amendments of the CBAM Regulation are necessary to recognize the positive and negative impact of indirect carbon prices on decarbonization, and the role of carbon-crediting mechanisms in equalizing carbon costs in a more flexible and equitable way.

Carbon Futures Volatility Forecasting: The Role of Spillover Effect from Crude Oil Futures Market

Accurate prediction of the volatility of EU carbon emission quota futures is an important foundation for pricing derivative products, portfolio allocation, and risk management. On the basis of the GARCH-MIDAS model involving mixed frequency data sampling, this article considers the spillover effect of Brent crude oil futures market on carbon quota futures market, and incorporates the spillover effect into the prediction of carbon quota futures volatility to construct the VS-GARCH-MIDAS model. Using the monthly realized volatility of Brent crude oil futures as a proxy variable to reflect spillover effects, empirical results indicate the existence of a one-way spillover effect of Brent crude oil futures market on carbon quota futures market. Moreover, the GARCH-MIDAS model considering spillover effects has better in sample fitting performance and stronger out of sample predictive ability than the original GARCH-MIDAS model. To ensure the robustness of this conclusion, this paper also investigates the impact of spillover effects generated by WTI crude oil futures on the volatility of EUA futures, and concludes that the GARCH-MIDAS model considering spillover effects can improve the prediction accuracy of EUA futures volatility.

How Does the Time-Varying Network Structure Evolve between the EU Carbon Futures Prices and Industrial and Energy-Related Indices? A Study Based on a Time-Varying T-Copula

Industrial and energy-related industries are major sources of carbon dioxide emissions, and their interdependence, as reflected in the financial field, has attracted the attention of scholars. For the purpose of exploring the evolutionary characteristics of the short-term dynamic correlation coefficient between the EU carbon futures price and the industrial and energy-related indices, this paper selected the settlement price of EU carbon emission quota futures, the MSCI energy I index on three dimensions, and the Dow Jones industrial index and West Texas crude oil futures price, as sample data. Using the time-varying t-copula model to measure the dynamic correlation coefficient between variables, the time-sliding window idea and coarse-grained method were combined to establish the correlation fluctuation mode, and a complex network theory and analysis methods were used to study the evolutionary traits of the time-varying network structure between the EU carbon price and the industrial and energy-related index. The results show that the transmission objects of the key correlation fluctuation modes in the network are stable and maintain their own state with a high probability. Second, the clustering effect exists in the transmission process. Some nodes with high mediating abilities are also the key correlation wave modes in the dynamic correlation evolution network. This study provides ideas for the study of the correlations between multiple variables and is also a useful reference for international investors.

EU carbon emission allowances as environmental and financial instruments – is it possible to kill two birds with one stone?

In this paper, the consequences of recognition of carbon emission allowances as financial instruments under the EU financial markets law including Directive 2014/65/EU of 15 May 2014 on markets in financial instruments (MiFID II) and the EU environmental law are analysed. We try to answer the question in what way the recognition of carbon emission allowances as financial instruments affected the functioning of the European Union Emission Trading Scheme (EU ETS). In particular, we ask whether it is beneficial or detrimental in terms of the environmental and economic effectiveness of the EU ETS.

The dynamic relationships between carbon prices and policy uncertainties

Using the generalized impulse response analysis, this study examines the nexus between the prices of crude oil, natural gas, and carbon emissions allowances in the EU carbon emissions trading system (CETS) and climate policy uncertainty (CPU) and global economic policy uncertainty (EPU). Additionally, we employ bootstrap rolling-window Granger causality tests to investigate the relationship between carbon price in China's national CETS and the US-specific EPU (USEPU). The results show that rising carbon and gas prices positively impact CPU, while a positive shift in oil price increases (decreases) the prices of carbon and gas (EPU). Furthermore, an increase in the CPU (EPU) positively impacts the gas price (increases the CPU but decreases the prices of carbon and oil). Finally, we find evidence of time-varied bi-directional causality between China's CETS and the USEPU. The above findings offer important implications for portfolio managers and policymakers.

Asymmetric effects of decomposed oil-price shocks on the EU carbon market dynamics

This paper studies the time-frequency and quantile dynamics of the asymmetric relationship between various oil price shocks and the dynamics of the EU carbon emission trading market. According to different sources, oil price shocks are decomposed from the perspectives of supply, demand, and risk of the oil market. Since the price-related information might be only a partial reflection of the market dynamics due to the inefficiency in nature, we extend the convention by gauging the inefficiency degree to explore the true dynamics of the carbon market. The tail dependence is then examined through a quantile coherency approach. Using a daily dataset from 2014 to 2021, our results confirm the asymmetric relationship over the data distribution, and such the asymmetry differs in different time frequencies. The role of oil shocks in impacting the inefficiency degree of the carbon market varies depending on the source of the oil shock. Our results offer comprehensive evidence regarding extreme co-movements between different sources of oil shocks and the carbon market dynamics. The results possess important implications to various stakeholders, especially when they have different time horizon preferences, for risk diversification in investment portfolios and effective emission reductions via the carbon market.

Global Spillovers of US Climate Policy Risk: Evidence from EU Carbon Emissions Futures

Global Spillovers of US Climate Policy Risk: Evidence from EU Carbon Emissions Futures

Impacts of oil shocks on the EU carbon emissions allowances under different market conditions

This study tests the effects of oil shocks on the returns of the European Union's carbon emission allowance (EUA) under different market conditions by using a quantile regression method. Furthermore, the research looks into whether the link between oil shocks and the returns of the EUA has any asymmetry or lagged effects. The results show that oil supply and demand shocks have a positive effect on the returns of the EUA, but oil risk shocks have a negative effect. Meanwhile, oil shocks tend to be stronger under bearish and normal market conditions. Moreover, we find the asymmetry of oil demand and risk shocks is more clearly reflected in bearish market conditions. However, the asymmetry of oil supply shocks is more reflected in bullish market conditions. Finally, we discover the lagged effect between oil demand and risk shocks is significant at lag one trading day and weakens or disappears at other lags. But the lagged impact of oil supply shocks is significant for lag one trading day in a bearish market and normal market conditions but significant at lag eight trading days in bullish market conditions.

Household consumption patterns and income inequality in EU countries: Scenario analysis for a fair transition towards low-carbon economies

The growing awareness of the current and future consequences of climate change has led to a range of international commitments aimed at ensuring sustainable development as part of the United Nations Framework Convention on Climate Change, and the Paris Agreement. These agreements reflect a concern of how to reduce carbon emissions and the pathway towards environmental improvement. Recent literature has pointed out the role of households as direct and indirect drivers of environmental impacts and as key agents in achieving low-carbon economies and climate-resilient development. Disparities in income distribution and lifestyles within and among countries, however, entail a different starting point for each country to reach sustainable pathways. The EU is fully committed to delivering on the United Nations 2030 Agenda and its implementation. Inequality continues to be a significant concern, reflected in the UN's Sustainable Development Goals. In this context, we explore the relationships between household consumption patterns in the EU, income inequality, and global carbon emissions trends, using an environmentally extended multiregional and multisectoral input-output model. We study the trends in global carbon emissions associated with the different household consumption patterns and income categories over 15 years, and evaluate the role of income distribution, consumption patterns, and technological conditions by country and income group. Additionally, we study, through certain scenarios, the potential achievement of double dividends, by alleviating poverty and reducing emissions.

Volatility Spillovers between the EU Carbon Emission Trading Market and Energy Markets

Volatility Spillovers between the EU Carbon Emission Trading Market and Energy Markets

EU carbon emissions by multinational enterprises under control-based accounting

The territory-based conception of environmental commitments disregards the crucial role of multinational enterprises (MNEs) in the global generation of greenhouse gases. Such a misconception discourages MNEs from pledging own emissions reduction goals as global agents and exempts their origin country of any responsibility for the emissions they generate abroad. We propose a new allocation criterion based on who has the ability to take MNEs’ decisions called the control-based accounting. We apply it for the first time to the MNEs’ foreign affiliates operating in the EU and estimate the CO2 emissions responsibility of EU countries under the control-based criterion, that is, assigning emissions generated by foreign-controlled companies to the origin country of the firms (controlling country) instead of the host country (as in the territory-based approach). We found that Germany and France are the EU countries with the highest control-based responsibilities; whereas Poland, the Czech Republic and Hungary bear significantly less responsibility under this approach compared to other allocation methods. The United States is the non-EU country with the greatest responsibility for emissions physically generated within the EU's territory through foreign affiliates. Targeting climate policies towards inducing parent companies and controlling countries to calculate and reduce the carbon footprint of their affiliates would place MNEs at the forefront of the fight against climate change.

A comparative study on the volatility of EU and China’s carbon emission permits trading markets

This paper applies the extended MFDFA method to analyze the volatility characteristics, multifractal features and asymmetry in EU carbon emission permits trading market(EUA) and the main Chinese carbon emission permits market including HBEA, SZA and GDEA. We divided the EUA market into three stages according to the phased construction plan of European commission. The empirical analysis shows that the fluctuation in the second and third stage of EUA market presents a long-term memory feature. However, there is obvious anti-persistent characteristics in the volatility of three main Chinese carbon emission permits trading markets and the first stage in EUA market. The multifractal degree in three main Chinese carbon emission permits trading markets is less than that in the first stage of EUA market, but far greater than the second and third stages. We also verified that the HBEA market has the weakest volatility and the least multifractal degree among three Chinese markets, and whose validity is second to the third stage of EUA market. In addition, the fluctuation of the EU and Chinese carbon emission permits trading markets are asymmetric. The EUA market has stronger reaction to good news, while Chinese carbon emission permits trading market still displays the leverage effect which verifies the volatility is more sensitive to the bad news in the second and third stages. Therefore, the results powerfully demonstrate that the Chinese carbon emission permits trading market is less mature and highly dynamic, which is similar to the level of first stage of EUA market. The volatility in Chinese markets is strong, and exists much noise in the system. So, the efficiency in Chinese markets is weaker than EU. Chinese markets are still far from maturity and efficiency.

EU Carbon Emissions Market Development and Its Impact on Penetration of Renewables in the Power Sector

This paper focuses on the analysis of the EU carbon trading scheme and its impacts on regional power system development and penetration of renewable energy sources (RES). The aim of the article is to analyze the forecasts of carbon dioxide (EUA) prices for the years 2019–2030 and to apply the results of this forecast in regional power system planning. The data employed in this paper come from many sources, including empirical data of the selected analytical companies, such as Thomson Reuters among others. The current low prices for carbon dioxide emission rights do not encourage the reduction of greenhouse gas emissions, in particular carbon dioxide, and do not have a significant impact on the penetration of renewables. This paper presents the results of two scenarios (for 2021 and 2030) developed after the analysis of the EUA price impact on penetration of renewable energy sources in West-Pomeranian region assuming different electricity production and the EUA price forecasts. The results of two regional energy development scenarios run for 2021 and 2030 indicate changes in the structure of renewables in West-Pomeranian region. The results also show that the increase of EUA price has a significant impact on the increase of costs for power production and increase of unit cost of the installed 1GWh. In addition, the forecasted EUA price in 2030 is 3% lower as compared with 2021, which has its impact on the increased share of electricity produced by co-firing biomass with other fossil—from 42% to 68% in the electricity generation structure of West-Pomeranian region.

欧盟碳排放市场价格波动周期特征研究

欧盟碳排放市场价格波动周期特征研究

Nearly zero energy building renovation: From energy efficiency to environmental efficiency, a pilot case study

Greenhouse gas emissions have been recognized as one of the major cause of the global warming phenomena. The built environment accounts for more than 40% of the overall energy consumption and 36% of the overall CO2 emissions in Europe. Recent studies show that housing is one of the most responsible sector for world ecological impacts. The European Parliament developed the concept of Nearly Zero Energy Buildings (NZEB), characterized by a very low energy demand and a high renewable energy on-site production. In fact, energy efficiency is the first step towards the ambitious aim to reduce of 80% by 2050 the EU carbon emissions. The zero-energy building target is an achievable goal, which relies on a careful design that encompasses a synergy between passive and low-energy strategies. However, considering the whole life cycle of buildings, NZEBs reduce the operational energy close to zero, increasing the relevancy of the embodied energy, which occurs during the construction phase. Balancing the values of the operational and embodied energy is necessary to minimize buildings footprint on the environment. In this paper the renovation and re-use of the Atika building, a demonstrative energy-efficient building, is presented as case study of an environmental efficient methodology for energy retrofitting. The case relies on the methodology developed by Active House, a holistic vision for sustainable buildings labeling.

A Study on the Law of Cyclical Fluctuation of Carbon Price—Empirical Evidence from EU ETS

Based on the trading data of the Bluenext and the European Climate Exchange (ECX), this paper analyzes the cyclic price fluctuations of the EU carbon emission rights by means of the maximum entropy spectrum and wavelet variance. The results show that: 1) there are obvious cyclical price fluctuations in the EU carbon trading market, with the longest cycle being 33 months and the shortest 5.7; 2) researches on the factors that affect the cyclical price fluctuations of carbon emission rights manifest that power prices (POWER) exert the greatest implication on the prices of carbon emission rights, followed by coal prices (COAL). For every 1% change in POWER, the price of carbon emission rights changes 10.95% towards the same direction. For every 1% change in COAL, the price of carbon emissions changes 9.28% towards the opposite; 3) research based on variance decomposition demonstrates that electricity prices contribute the most to the changes of the price of carbon emissions, and the variance contribution rate is 13% at a lag cycle of 30 days.

Analysis and Tests on Weak-Form Efficiency of the EU Carbon Emission Trading Market

This study separately applies Lo MacKinlay traditional variance ratio test, Wright non-parametric test, Chow Denning multiple variance ratio test and Joint Wright multiple variance ratio test to analyze and test the features of the EU carbon emission market and the results show that: in the 12-year development of the EU carbon emission trading, only the rate of return in the second stage follows the Martingale Process, showing a weak-form efficient market, while the first and third stages fail to possess features of an efficient market.

Assessment of the EU 10% interconnection target in the context of CO2 mitigation

The European Commission has proposed the target of achieving an interconnection capacity of at least 10% of the installed electricity production capacity for each Member State by 2020 in the context of the envisaged Energy Union. The underlying objectives are to increase the security of supply at affordable prices via market integration and to contribute to decarbonization by accommodating an increasing level of renewable generation. In this article we have assessed whether this target could effectively fulfil these two objectives. Our main focus is on the assessment of the impacts of compliance with the 10% interconnection target on the carbon emission of the European electricity system. Our main research question concerns the impact of interconnection capacity increases on EU carbon emission due to the better market integration, disregarding the RES-E integration aspects. In order to arrive at workable scenarios for the future cross-border capacity extension, the security of supply and market integration impacts are also assessed.We concluded on the basis of our European dispatch model that full compliance would slightly increase carbon emission in the EU, ceteris paribus. This impact is due to increased coal- and lignite-based electricity production, mainly in Germany, Poland and the Czech Republic. By increasing the interconnections of these countries with their neighbours at the present low carbon price under the EU emissions trading scheme, these carbon-intensive electricity systems run on higher utilization rates and consequently increase carbon emission. It has to be emphasized that the increase is found for the current situation, and changes in other factors, such as increases in carbon prices or renewable generation, could modify this result.Policy relevanceOur results demonstrate that EU network development and climate policies are highly interconnected. Changing patterns in the interconnections of the EU electricity systems connect diverse generation portfolios and in a low carbon price environment could increase carbon emission at the community level. Policy makers should be aware of the interactions between these areas and design policy tools that also consider negative synergies.