Increasing Carbon Price Research Articles

Using Game Theory to Explore the Multinational Supply Chain Production Inventory Models of Various Carbon Emission Policy Combinations

This study uses Stackelberg game theory, considering different combinations of carbon emission reduction policies and that high-carbon-emission enterprises may face various carbon emission reduction regulations, to explore the production inventory problems in a multinational supply chain system. The purpose is to determine the manufacturer’s optimal production, shipping, carbon reduction investment, and the retailer’s replenishment under the equilibrium for different carbon emission policy combinations. To develop the production inventory models, this study first develops the total profit and carbon emission functions of the supply chain members, respectively, and then obtains the optimal solutions and total profits of the manufacturer and the retailer under different carbon emission policy combinations through the mathematical analysis method. Further, this study used several numerical examples to solve and compare the proposed models. The results of numerical analysis show that regardless of the increase in carbon price or carbon tax, the manufacturer and retailer will adjust their decisions to reduce carbon emissions. Specifically, an increase in the carbon price contributes to an increase in the total profit of manufacturers, while an increase in the carbon tax reduces the total profit of manufacturers. This study also explores a sensitivity analysis on the main parameters and has yielded meaningful management insights. For instance, in cases where low-carbonization strategies are required, the manufacturer or retailer can effectively reduce the carbon emissions resulting from production or purchasing activities, thereby significantly reducing overall carbon emissions. It is believed that the results of this study can provide enterprises/supply chains with reference to their respective production, transportation, carbon reduction investment, and inventory decisions under carbon emission policies, as well as information on partner selection and how to adjust decisions under environmental changes.

Firms’ Heterogeneous (and Unintended) Investment Response to Carbon Price Increases

Firms’ Heterogeneous (and Unintended) Investment Response to Carbon Price Increases

Impact of carbon emission trading and renewable energy development policy on the sustainability of electricity market: A stackelberg game analysis

Optimizing the electricity structure and achieving sustainable development are critical objectives in the current electricity market. To facilitate a low-carbon transition, China is planning to implement renewable energy development policies based on carbon emissions trading (CET), which includes feed-in premiums (FIP), renewable portfolio standards (RPS), and their corresponding green certificate trading mechanisms. However, it remains to be seen how these policies will work together to promote the growth and adoption of renewable energy sources in China. Accordingly, this paper aims to establish a Stackelberg game model of the electricity market under the two types of combination policy scenarios of CET-FIP and CET-RPS and compare the influence of different combination policies on the development of the renewable energy industry. The results show that: (1) Compared with a single renewable energy development policy, CET-RPS and CET-FIP policies can effectively reduce carbon emissions. (2) In the long run, the CET-RPS policy has a stronger ability to reduce emissions, and the CET-FIP policy has stronger economic benefits. (3) In the early stage of renewable energy development, electricity generation, profit of power generation companies, and social welfare are higher under the CET-RPS policy, while in the mature stage of renewable energy development, these important performance indices become better under the CET-FIP policy. (4) Under the CET-RPS policy, an increase in carbon price will result in an increase in on-grid price and a decrease in green certificate price. In contrast, under the CET-FIP policy, an increase in carbon price will lead to an increase in on-grid price and premium subsidy.

Low-carbon planning and optimization of the integrated energy system considering lifetime carbon emissions

The optimization of the near-zero/negative emission integrated energy system (IES) is an important technology for achieving carbon emission peak and neutrality targets. However, most research only focused on the zero or negative emission operation of an IES, while ignoring the carbon emissions during the system equipment configuration stage. To address this problem, a two-stage low-carbon planning optimization model for integrated energy system has been developed. In the first stage, investment costs and lifetime carbon emissions are considered in capacity configuration. In the second stage, a max-min robust model is used to realize minimizing operation costs and maximum uncertainty user loads. Based on weather data of urban Urumqi, lifetime carbon emissions of the IES are optimized and greenhouse payback time (GPBT) is calculated. In the optimal results, wind power capacity is less than 1.1% of photovoltaic (PV) capacity. When the carbon price is 0.04 CNY/kg, it is infeasible to achieve greenhouse gas payback time (GPBT) for the system. When price increases to 0.14 CNY/kg, 0.24 CNY/kg, 0.34 CNY/kg, and 0.44 CNY/kg, respectively, it is feasible for IES realize GPBT at durations of 25 years, 19.9 years, 16.8 years, and 15.7 years, respectively. And the capacity of photovoltaic increases rapidly with the increasing carbon price. Those findings indicates that low-carbon value of photovoltaic is more than wind power in urban Urumqi. To realize feasible GPBT, carbon price should greater than 0.14 CNY/kg. This research provides a method to realize IES low-carbon planning and GPBT calculation. Using this method could reduce carbon emissions and realize feasible greenhouse gas payback.

Carbon price and firm greenhouse gas emissions

Drawing on the recent enthusiasm in the carbon markets, I examine the impact of carbon prices on firm greenhouse gas (GHG) emissions. Using a sample of 1591 firms from 23 European countries, I demonstrate that an increase in carbon price decreases corporate GHG. At hypothesized higher carbon pricing levels, I document that the effect of pricing on corporate GHG emissions is negative. The negative impact of high carbon prices manifests in other harmful gases such as sulphur and volatile organic compounds (VOCs). In evaluating how the various phases of the EU emission trading scheme have affected firm greenhouse gas emissions, I show that the negative effect of pricing became pronounced in Phase 3 of the EU ETS. The findings from this study are robust to alternative econometric specifications and further sample selection criteria.

Financial comparison of afforestation using redwood and radiata pine under carbon regimes within New Zealand

The accurate regional characterisation of the quantity and value of carbon for key plantation species is important for both forest owners and governments. New Zealand is committed to reaching carbon net zero by 2050 and forests are currently dominated by the fast growing species radiata pine (Pinus radiata) which comprises 90% of all plantations. However, coast redwood (Sequoia sempervirens) is a promising alternative species, that is particularly suited to permanent carbon regimes, as the species is capable of rapid growth over hundreds of years. Recent increases in the carbon price have stimulated afforestation rates within New Zealand and permanent forests now comprise almost one-quarter of new plantings. Using growth models to predict carbon over a 100 year period, the objective of this study was to regionally compare carbon yields and net present value (NPV) for radiata pine and redwood carbon regimes.Model predictions show that by age 100 years, total carbon for redwood exceeded that of radiata pine within eight of the nine regions within New Zealand. Gains were greatest in the North Island, where redwood carbon exceeded that of radiata pine by on average 74%, with differences reaching up to 85% (5,203 vs. 2,808 tonnes CO2/ha at age 100 years). Under a flat baseline real carbon price of $80/tonne CO2, the NPV for redwood was very similar to that of radiata pine within four of the five North Island regions. This similarity between species was maintained across the examined carbon price range which included 26 real carbon values ranging from $35 to $160/tonne CO2. However, NPV for radiata pine exceeded that of redwood within all South Island regions as growth rates for radiata pine were greater over the first 50 years and these earlier returns have higher weighting in discounted cashflow analysis. There was marked divergence in NPV between species across all four South Island regions with increasing carbon price. The establishment of a large permanent redwood resource over the next few decades in the North Island could greatly assist New Zealand to meet its carbon obligations over both the medium to long term.

Research on Supply Chain Optimization Considering Consumer Subsidy Mechanism in the Context of Carbon Neutrality

With the proposal of China’s “carbon peak, carbon neutral” strategy, the increasing awareness of low carbon production among consumers, and the government’s introduction of carbon trading mechanism and low carbon consumption subsidy policies, enterprises are facing good opportunities for development. However, how the government can reasonably formulate low carbon policies and how enterprises can implement optimal low-carbon production decisions are still key issues in China’s low-carbon transition development. In this context, this paper is based on the carbon trading mechanism and carbon consumption subsidies. In this context, based on the carbon trading mechanism, this paper focuses on green production and green consumption, considers the impact of low-carbon consumer preferences and government subsidies on enterprises’ low-carbon production decisions, and uses the optimal theory to study the optimal pricing strategy and the optimal carbon reduction strategy. The study shows that the increase in carbon price has a positive effect on the increase in enterprise profit; the increase of carbon emission has a negative effect on the increase of enterprise profit and the high carbon price will intensify this effect. In addition, changing the intensity of government subsidies to consumers will lead to the change of enterprise carbon emission strategy. The study of this paper provides a certain reference for the government to reasonably formulate carbon trading prices and consumer low-carbon subsidies. In addition, considering consumer low-carbon preferences is also conducive to promoting green production practices of enterprises, thus promoting the realization of the carbon neutral strategy.

The carrot and the stock: In search of stock-market incentives for decarbonization

Financial markets can support the transition to a low-carbon economy by redirecting funds from highly emissive to clean investments. We study whether European stock markets take carbon prices into account in company valuations and to what degree they discriminate between firms with different carbon intensities. Using a novel dataset containing stock prices and carbon intensities of 338 European publicly traded companies between 2013 and 2021, we find a strongly statistically significant relationship between weekly carbon price changes and stock returns. Crucially, this relationship depends on firms’ carbon intensity: the higher the carbon costs a firm faces, the poorer its stock performance during the periods of carbon price increases. Emissions that firms cover with free allowances however do not impact this relationship, illustrating how, in the absence of carbon pricing, data disclosure alone might not be sufficient for financial markets to support climate change mitigation. The relationship we identify can provide an incentive for firms to decarbonize. We argue in favor of more ambitious carbon pricing policies, as this would strengthen the stock-market incentive channel.

External energy security elements and the riskiness of clean energy stocks: a volatility analysis

PurposeClean energy stocks are exhibiting signs of increasing volatility reflecting the varied and conflicting strategies employed by nations to pursue energy security objectives. In this regard, this paper aims to examine the response of NASDAQ clean energy stock returns volatility to the influences of external energy security elements including oil price, natural gas price, coal price, carbon price and green information technology stock price.Design/methodology/approachThe paper uses symmetric and asymmetric generalised autoregressive conditional heteroskedasticity models (GARCH and TGARCH, respectively), which incorporate external energy security elements as exogenous variables, to estimate volatility models for clean energy stock returns.FindingsAlthough, prices of oil, coal and natural gas are negatively associated with NASDAQ clean energy returns volatility, only the effect of natural gas price is significant. While carbon price affects NASDAQ clean energy returns volatility positively, green information technology price affects the volatility negatively. These results are robust to exponential GARCH and lead-and-lag robust ordinary least-squares as alternative estimation methods.Research limitations/implicationsThe study lumps the effects of all other external and internal factors, including internal energy security elements, in the autoregressive conditional heteroscedasticity (ARCH) term to predict NASDAQ clean energy returns conditional variance. GARCH method does not disentangle individual roles of the factors captured in the ARCH term in predicting volatility.Practical implicationsResults documented imply that natural gas appears a closer substitute for renewable energy sources than crude oil and coal, such that its price rise is perceived as good news in the NASDAQ clean energy financial market, while a fall is considered bad news. Furthermore, both an increase in carbon price and a decrease in green information technology stock performance are perceived as negative shocks.Social implicationsIn assessing risks associated with clean energy stocks, investors and fund managers should carefully consider the effects of external energy security elements.Originality/valueTo the best of the author’s knowledge, the paper is the first to identify external energy security elements and examine their effects on clean energy stock volatility.

How carbon emission prices accelerate net zero: Evidence from China's coal-fired power plants

China produced over half the world's coal-fired power capacity. Using a recent and comprehensive dataset of 1269 Chinese coal-fired power plants from 2009 to 2019, this paper provides empirical evidence of the impact of China's carbon trading pilot program on emissions regulation. Results show the significant potential for emissions intensity reduction due to increasing carbon prices, especially for low-risk, low-efficiency but high-cost plants, particularly those in China's midland and western regions. Rising marginal abatement costs and accelerated depreciation from carbon prices may encourage utilities to retire high-emission power plants sooner than originally planned, leading to lower emissions intensity. The average retirement years of China's power plants can be shortened by 1.8001 and 1.6862 years under R2CUT and R2LUMP scenarios, respectively, as Cao et al. (2016). This study offers new insights into the impact of carbon prices on power plants and has important policy implications.

Trading, storage, or penalty? Uncovering firms' decision-making behavior in the Shanghai emissions trading scheme: Insights from agent-based modeling

The emissions trading scheme (ETS) has become a flagship climatic initiative for regulating greenhouse gas (GHG) emissions. Under an ETS, the emitting firm must simultaneously deal with changing carbon prices and the number of permits and the trade-off between permit trading (if one should buy, sell, or reserve) and permit-consuming production. This study characterizes the different compliance strategies' trade-offs, logic, and options among regulated emitting firms under an ETS. Consequently, this study provides firm-level evidence of regulated firms' strategic responses under the Shanghai ETS, considering detailed firm information, heterogeneous industry characteristics, and ETS architects. The proposed model simulated the trading interactions among diversified firms to portray the firms' decision-making process, and the emergent effects on the ETS market were identified. The results indicate that: 1) the carbon price experiences a non-monotonic “L-shaped” trend, which maintains an initial low level and increases sharply after crossing a threshold; 2) with increasing carbon prices, the trading in ETS becomes more active, especially among the low-emission firms; 3) the current ETS penalty is too limited and generic, which inadequately induces technological development and carbon reduction among firms. Finally, policy suggestions are provided for future optimization of the ETS mechanism. Overall, this study contributes to operation management literature by evaluating decision-making behaviors in a dynamic environment. Our findings have global implications for policymakers and managers in the private sector.

Process analysis for the simultaneous production of aromatics and syngas from shale gas and CO2

The production of benzene, toluene, and xylene (BTX) from shale-derived CH4, C2H6, and C3H8 is considered a promising alternative to their fossil-based counterparts. Herein, we evaluate a production technology for aromatics and hydrogen with non-oxidative and CO2 co-feeding reactions to predict the economics and environmental impact of each process. The optimal process for producing aromatics and hydrogen varies depending on the presence or absence of CO2, and we experimentally confirm the difference in the reaction systems. The operating conditions of both processes are optimized using an experiment-based surrogate model in terms of thermal energy demand and profit of products, which account for the highest portion of BTX production cost. Particularly, the CO2 emissions and economic feasibility of the proposed BTX production processes are compared with those of an ethane cracking center using shale gas and the naphtha reforming/Cyclar process to produce BTX. In the CO2 co-feeding case, the CO2 reduction effect is proven compared to other processes, and the economics was improved by the sale of H2 and CO compared to the non-oxidative BTX production. Furthermore, the BTX production cost reflecting the carbon price is comparable to that of commercial processes; as the carbon price increases, the economics has the potential to outperform existing processes. These findings present a platform for economic evaluation based on CO2 emissions as well as the economic benefits of processes that reduce CO2 emissions for energy-efficient conversion of shale gas into high value-added products.

What Is the Policy Effect of Coupling the Green Hydrogen Market, National Carbon Trading Market and Electricity Market?

Green hydrogen has become the key to social low-carbon transformation and is fully linked to zero carbon emissions. The carbon emissions trading market is a policy tool used to control carbon emissions using a market-oriented mechanism. Building a modular carbon trading center for the hydrogen energy industry would greatly promote the meeting of climate targets. Based on this, a “green hydrogen market—national carbon trading market–electricity market” coupling mechanism is designed. Then, the “green hydrogen market—national carbon trading market–electricity market” mechanism is modeled and simulated using system dynamics. The results are as follows: First, coupling between the green hydrogen market, carbon trading market and electricity market can be realized through green hydrogen certification and carbon quota trading. It is found that the coupling model is feasible through simulation. Second, simulation of the basic scenario finds that multiple-market coupling can stimulate an increase in carbon price, the control of thermal power generation and an increase in green hydrogen production. Finally, the proportion of the green hydrogen certification, the elimination mechanism of outdated units and the quota auction mechanism will help to form a carbon pricing mechanism. This study enriches the green hydrogen trading model and establishes a multiple-market linkage mechanism.

The Effect of Carbon Price Volatility on Firm Green Transitions: Evidence from Chinese Manufacturing Listed Firms

Accelerating the promotion of the green transition can help to achieve high-quality development in manufacturing industries. In terms of policies that encourage the transition to green production, carbon trading is a direct and effective means of achieving this goal, and the carbon price is an important regulator in trading. Normally, firms respond to carbon prices by making three behavioral choices: production restrictions, pollution reduction, and the technological transition to green production. This study examines the effect of carbon price volatility on the decision to conduct green production, i.e., transforming to sustainable technologies and processes. In addition, this paper also investigates whether organizational resource slack and organizational technical standards moderate the relationship between the carbon price volatility and firms’ green transitions. The results suggest that a steadily increasing carbon price will motivate firms to make a green transition, but if the carbon price is volatile, firms will be reluctant to make a green transition. This tendency to make a green transition is stronger when firms have resource slack and have implemented green technical standards. The findings provide empirical evidence and policy implications regarding how manufacturing firms can accelerate their green transition.

Technology pathways for industrial cogeneration systems: Optimal investment planning considering long-term trends

Cogeneration plants appear highly attractive for industrial companies as production sites typically combine demands for electricity, heating, and cooling. However, gas-fired cogeneration might become economically less attractive with further increasing carbon prices and companies’ commitment to decarbonization targets. This paper proposes a methodology to determine technology pathways from an optimization model. Technology pathways describe the evolution of an energy supply system over a multi-decade planning horizon. Therefore, projected long-term trends are integrated into the decision-making process for energy supply infrastructure. Three investment strategies are compared regarding their accuracy and computational complexity. The methodology is illustrated for industrial sites from dairy, pharmaceutical and automotive industry in Southern Germany. Results highlight the advantages of technology pathways compared to optimization approaches based on a representative year. A strategic planning approach identifies optimal decarbonization pathways with economic saving potentials of up to 20 %. For most of the considered case studies, a sequential decision approach with a rolling horizon heuristic yields similar results in 89 % less solving time.

Using emissions trading schemes to reduce heterogeneous distortionary taxes: The case of recycling carbon auction revenues to support renewable energy

We examine the economic impacts of using the revenues from environmental taxation to reduce a pre-existing distortionary tax in a multisector economy where the environmental regulation and pre-existing distortionary tax apply heterogeneously across polluting sectors. With a numerical framework including a detailed sectoral disaggregation, we quantify these in the specific case of the European Union where carbon pricing coexists with electricity levies employed to support renewable energy. We find that using auction revenues from the EU Emissions Trading System (ETS) to reduce the national levies results in a 1.8% ETS carbon price increase but a 5.9% drop in the non-ETS carbon constraint. While the energy intensive sectors often benefit from electricity levy exemptions, the combination of these exemptions and of the recycling of carbon auction revenues to support renewable energy makes the ETS sectors worse off than if carbon revenues are transferred to households. In aggregate, the recycling option analysed here results in a GDP gain due to its impacts on the non-ETS sectors, the reduction of the electricity levy and associated distortionary effects.

Techno-economic evaluation of medium scale power to hydrogen to combined heat and power generation systems

The European Hydrogen Strategy and the new « Fit for 55 » package indicate the urgent need for the alignment of policy with the European Green Deal and European Union (EU) climate law for the decarbonization of the energy system and the use of hydrogen towards 2030 and 2050. The increasing carbon prices in EU Emission Trading System (ETS) as well as the lack of dispatchable thermal power generation as part of the Coal exit are expected to enhance the role of Combined Heat and Power (CHP) in the future energy system. In the present work, the use of renewable hydrogen for the decarbonization of CHP plants is investigated for various fossil fuel substitution ratios and the impact of the overall efficiency, the reduction of direct emissions and the carbon footprint of heat and power generation are reported. The analysis provides insights on efficient and decarbonized cogeneration linking the power with the heat sector via renewable hydrogen production and use. The levelized cost of hydrogen production as well as the levelized cost of electricity in the power to hydrogen to combined heat and power system are analyzed for various natural gas substitution scenarios as well as current and future projections of EU ETS carbon prices.

Alternative fuels’ blending model to facilitate the implementation of carbon offsetting and reduction Scheme for International Aviation

The aviation sector contributes 4.1% to the global economy, although it was responsible for 2.8% of the net global CO2 emissions in 2019, and it contributed around 12% of the CO2 emissions produced from the transportation sector alone in 2018. Hence, the UN’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) can serve as a cost-effective mechanism to promote low carbon fuels and mitigate CO2 emissions, where integrating alternative jet fuels may reduce the cost associated with CORSIA's offsetting requirements. Therefore, this study considers the following alternative production pathways; Gas to Liquid, Oil to Jet, Gas to Jet, Sugar to Jet, Catalytic Hydro-thermolysis Jet and Alcohol to Jet; for the development of an optimal fuel blending model. A multi-objective model is developed and transformed into a singular objective function for a convenient minimisation of the total fuel-related costs for operators under CORSIA. The model considered the reclaiming possibility of offsetting costs when a CORSIA's eligible fuel is utilised. The results demonstrated that an increase in carbon price increases the total net cost of fuel purchasing and carbon taxing, therefore, enhancing the opportunity for airlines to integrate larger shares of alternative fuels. In addition, the presented model managed to select optimal fuels' blending ratios considering carbon credit approach, which achieved a total cost reduction by 0.13% to 8.08%, assuming a carbon tax range of 3–180 $/tonne CO2.

Pricing the deep peak regulation service of coal-fired power plants to promote renewable energy integration

At present, the decarbonization of China’s power system depends on the large-scale integration of renewable energy. Motivating coal-fired power plants to provide deep peak regulation (DPR) service is the most important means of avoiding renewable energy curtailment. This research proposes a pricing mechanism for DPR and proves that this mechanism meets the requirements of incentive compatibility and individual rationality. By determining the unit price of DPR service according to the value created for the power system by the service provider, this mechanism can effectively promote renewable energy integration at minimum cost. A unit commitment case based on the actual generation structure and load curves of a southern province in China is constructed to quantitatively study the mechanism. Our results show that the unit price of DPR service will rise as the renewable energy installed capacity increases and will drop as carbon or coal price increases. The unit price varies between 50 and 500 yuan / MWh and exceed the generation income, which indicates that the mechanism can encourage coal-fired power plants to promote integration of renewable energy.

Resilience optimization of multi-modal energy supply systems: Case study in German metal industry

The energy-intensive industry sector, including the metal industry, strongly depends on resilient energy supply concepts. Environmental concerns, e.g. about the future availability of groundwater for cooling, force companies to analyze the resilience of their energy supply systems. The use of heat pumps, electrolysers and combined heat-and-power units couples multi-modal supply systems for electricity, thermal demands, and process gases. This paper presents an integrated design approach for industrial supply systems showcased for a real-world case of a German copper mill. System resilience is evaluated for both environmental risk mitigation and technical robustness. Quantitative results reveal heat pumps as an attractive technology option: Groundwater withdrawal for cooling is cost-efficiently reduced by 18%, whereas the waste heat can be utilized to meet more than 70% of the space heating demand. This enhances system resilience to a future tightening of the regulatory environment for water withdrawal and increasing carbon prices. The mill experiences only rarely grid outages due to the high reliability of the German power system. Additional distributed generators or storages with the ability of islanding therefore do not appear economically beneficial in this case study.