What drive carbon price dynamics in China?

This paper examines the driving factors of China carbon price in a systemic way with quantitative analysis. Specifically, three categories of driving forces as macro economy risk and uncertainty, energy and environment factors are selected to investigate their impacts on carbon price in China, by adopting the dynamic connectedness measurement approach. The empirical results confirm each driving factor has made contributions to the carbon price fluctuations, and the dynamic interactions among them have enhanced connectedness of the whole system. However, the directional dynamic spillovers indicate main driving factors to carbon price are heterogeneous varying over the whole sample and in different carbon markets. Most importantly, market sentiment plays main role in the carbon price dynamics of Guangdong market, whereas the electric power index makes great effects to Hubei carbon price changes, and the carbon price fluctuations in Shenzhen market are largely caused by air quality situation.     

试论我国碳排放权期货市场的构建

随着全球温室效应和气候变暖问题的日益严重,二氧化碳的减排越来越受到了人们的重视,以二氧化碳排放权为标的的国际碳排放权交易市场应运而生。期货市场具有价格发现、套期保值等功能,对于发展迅猛的碳排放权交易市场来说,建立碳排放权期货市场有重要的意义。本文首先简要介绍碳排放权交易市场,接着阐述我国建立碳排放权期货市场的必要性,然后分析我国建立碳排放权期货市场的可行性,最后提出我国开展碳排放权期货交易的设想。     

Do green bonds and economic policy uncertainty matter for carbon price? New insights from a TVP-VAR framework

Green bond shocks and economic policy uncertainty are essential factors affecting macroeconomic development and green finance. In this paper, the time-varying parameter vector autoregressive (TVP-VAR) framework is used to analyze the monthly data of China from April 2014 to March 2022 and to investigate the dynamic impact of green bond shock and economic policy uncertainty on carbon prices. The results show that economic policy uncertainty and the impact of the green bond have significant time-varying and short-term effects on carbon price. In the short term, economic policy uncertainty has a significant positive impact on carbon price most of the time, while green bond has a significant negative impact on carbon price most of the time. Meanwhile, economic policy uncertainty and the impact of green bond on carbon price in Hubei and Guangdong are heterogeneous. In addition, we also use Bayesian VAR (BVAR) model to test the robustness of the results. Based on the research results, some policy suggestions are put forward, including improving the stability of economic policies, implementing green bond support policies, and speeding up the improvement of the national unified carbon emission trading market.     

碳排放权市场价格发现功能的实证分析

碳期货市场在碳市场扮演着极为重要的角色,通常具有价格发现的功能。本文分析了国际碳排放权交易市场两种主要商品EUA、CER的期货价格关系．通过向量误差修正模型和公共因子模型对欧盟碳期货EUA与CER期货进行了实证研究。结果显示：EUA、CER这两种主要碳排价格指标之间具有很高的相关性,存在长期均衡的协整关系,均扮演着重要的价格发现角色,同时EUA期货价格引导CER期货价格变化。     

Do investors find carbon information useful? Evidence from Italian firms

The usefulness of carbon disclosures has been questioned in the literature because they do not truly reflect firm’s carbon performance, suggesting that they may not be useful for risk evaluation and investment decisions. This study empirically tests the usefulness of carbon information voluntarily disclosed by the Italian firms. Our results based on the price model show that there is a positive association between the stock price and carbon disclosures, suggesting that investors find carbon information useful for their investment decisions. We find similar results based on the market valuation model. Additionally, the results reveal that the positive association is especially strong for firms that have established environmental committees on a voluntary basis and also for firms from the highly polluting industries defined by the EU_ETS program, confirming that investors’ positive response is especially strong to carbon disclosures by firms from the highly polluting industries. We also find that the market reacts positively to carbon disclosures by firms with a higher percentage of independent directors on their corporate boards, but the positive association is marginally significant.     

Price impact of block trades: the curious case of downstairs trading in the EU emissions futures market

Using high-frequency data from the European Climate Exchange (ECX), we examine the determinants of price impact of €21 billion worth of block trades during 2008–2011 in the European carbon market. We find that wider bid-ask spreads and volatility are characterised by a smaller price impact. Larger levels of price impact are more likely to occur during the middle of the trading day, specifically the four-hour period between 11 a.m. and 3 p.m., than during the first or final hours. Purchase block trades induce a relatively smaller price impact on price run-up, while sell block trades exhibit a larger price impact on price run-up. We conclude that block trades on the ECX induce less price impact than in equity or conventional futures markets, and that a significant proportion of the effects contradict findings on block trades in those markets; thus, we provide the first evidence of the curious bent to block trading in the European Union emissions trading scheme.     

基于CDM机制的国际碳排放权贸易价格波动性研究

运用规范分析和基于GARCH模型族的实证分析发现:清洁发展机制(CDM)下国际碳排放权核证减排单位(CERs)市场的价格波动是政治博弈、国际经济形势等多重因素共同冲击的结果。其价格波动呈现时变性、聚集性和持续性特征,市场"杠杆效应"明显。我国作为全球CDM项目的最大供给方,为了掌握定价权,必须寻求CERs市场价格波动规律、积极参与国际气候环境条款的谈判、选择恰当贸易时机和建立CDM项目风险管理体系。     

Combining input-output analysis and micro-simulation to assess the effects of carbon taxation on Spanish households

This paper explores the effects of a tax levied on Spanish energy-related CO2 emissions. After justifying the relevance of carbon taxation in the Spanish context, we consider the introduction of a product (fossil-fuel) tax with a rate obtained through the ‘actual damage cost’ method. Our empirical analysis proceeds in two stages. First, we employ an input-output demand model to calculate the price changes after the introduction of carbon taxation. In a second stage, simulation with Spanish household micro-data for 1994 yields the environmental and economic effects of a Spanish carbon tax. We find a limited short-run reaction to the carbon tax, which hampers its environmental success. The carbon tax burden is, however, significant, with a proportional distribution across households.     

Cheaper,Greener and More Efficient: Rationalising UK Carbon Prices

Current UK energy use policies, which primarily aim to reduce carbon emissions, provide abatement incentives that vary by user and fuel, creating inefficiency. Distributional concerns are often given as a justification for the lower carbon price faced by households, but there is little rationale for carbon prices associated with the use of gas to be lower than those for electricity. We consider reforms that raise carbon prices faced by households and reduce the variation in carbon prices across gas and electricity use, improving the efficiency of emissions reduction. We show that the revenue raised from these reforms can be recycled in a way that ameliorates some of the distributional concerns. Whilst such recycling is not able to protect all poorer households, existing policy also makes distributional trade‐offs, but does so in an opaque and inefficient way.     

Carbon Price in China: A CO2 Abatement Cost of Wind Power Perspective

As a result of rapid development of industrialization and urbanization, energy (especially fossil fuels) demand growth is increasing. Hence, China is facing the huge pressure of environmental protection and CO₂ emission reduction. The feed-in tariff (FIT) policy that promotes more wind power to substitute for thermal power and a well-functioning carbon price mechanism can significantly affect CO₂ abatement, and both can work in coordination to achieve emission reduction. Using panel model, we prove that FIT policy is more effective than other policies in promoting more wind power. Also the slowdown of economic growth, energy substitution, technological progress, and CO₂ mitigation requirement can stimulate the expansion of wind power. Additionally, based on the calculation of real abatement cost of wind power, we obtain the provincial and national average of carbon prices (239 CNY/ton and 242 CNY/ton). Specifically, 233-251 CNY/ton will be the range for reasonable carbon price in the future. We find that the carbon prices in this article are higher than those of the emissions trading scheme pilots in 2014 and 2015, due to the relatively high proportion of free allowance. Based on the above conclusions, we proposed some policy suggestions.     

Environmental engagement and stock price crash risk: Evidence from the European banking industry

This paper investigates the impact of banks' environmental engagement on their future stock price crash risk. Given the strong commitment of European institutions towards a low carbon economy, we focus on European banks, which are expected to be crucial actors in driving this challenge. Using a sample of 447 bank-year observations across 22 European countries from 2015 to 2021, we find a negative relationship between banks' environmental engagement and future stock price crash risk, in accordance with the signalling theory, suggesting that a high level of environmental engagement corresponds to high ethical standards of bank managers and high levels of financial transparency.     

Do Americans consume too little natural gas? An empirical test of marginal cost pricing

This article measures the extent to which prices exceed marginal costs in the U.S. natural gas distribution market during the period 1991–2007. We find large departures from marginal cost pricing in all 50 states, with residential and commercial customers facing average markups of over 40%. Based on conservative estimates of the price elasticity of demand, these distortions impose hundreds of millions of dollars of annual welfare loss. Moreover, current price schedules are an important preexisting distortion which should be taken into account when evaluating carbon taxes and other policies aimed at addressing external costs.     

碳定价、双重金融摩擦与“双支柱”调控

本文构建包含异质性企业、双重金融摩擦和“双支柱”政策的DSGE模型来探究碳税和碳交易这两种碳定价政策对中国宏观经济的长短期影响和作用机制。研究发现:(1)两种碳定价政策均会导致经济在短期出现一定衰退,但在长期则有助于推进经济高质量发展,达到更高的均衡水平;(2)在面对碳排放技术冲击时,相比碳税政策,碳交易政策下,碳价大幅波动会进一步加剧经济波动,在碳交易市场中对碳价设定上下限,可以有效地减轻碳排放技术冲击所导致的经济波动;(3)面对气候政策冲击,包含金融部门风险规避的双重金融摩擦会进一步加剧气候政策对宏观经济的负面影响;(4)在经济转型过程中,结构性供需不平衡会引发一定的通胀现象,但此时货币政策不宜对通胀做出过多反应,而应刺激产出,支持绿色发展,推动供需平衡,从根源上解决通胀问题。引入“双支柱”调控后发现,考虑到经济转型风险的宏观审慎政策能显著减弱气候政策所导致的经济波动和金融不稳定,提高居民福利。     

Price discovery in carbon exchange traded fund markets

In this study, we analyze the price discovery in four carbon exchange-traded funds (ETF) markets: (i) VanEck Low Carbon Energy ETF (Vaneck), (ii) iShares MSCI ACWI Low Carbon Target ETF (iShare), (iii) SPDR MCSI ACWI Climate Paris Aligned ETF (SPDR), and (iv) Xtrackers Emerging Markets Carbon Reduction and Climate Improvers ETF (Xtrackers) using daily closing prices of the four carbon ETFs from December 6, 2018, to November 30, 2022. All four ETF prices are found to have a single unit root implying the efficiency of these ETF markets (LeRoy 1989). However, Johansen's (1991) cointegration test reveals that these four ETFs are driven by not one but three common stochastic trends. Further Analysis reveals that iShares and SPDR markets are driven by the same market force (common stochastic trend). Based on the generalized information share (GIS), we find that approximately 57.89% and 42.11% of the price discovery occurs in the iShares and SPDR markets, respectively. We further analyze the impact of the COVID-19 pandemic by dividing the whole sample into pre-COVID and COVID subsamples. In the pre-COVID period, the GIS measures for the iShares and SPDR are 88.69% and 11.31%, respectively. However, GIS measures for the iShares and SPDR are 1.04% and 98.96%, respectively, in the COVID period indicating a significant impact of COVID-19 on price discovery.     

The Cost of Carbon: Capital Market Effects of the Proposed Emission Trading Scheme (ETS)

In March 2008, the Australian Government announced its intention to introduce a national Emissions Trading Scheme (ETS), now expected to start in 2015. This impending development provides an ideal setting to investigate the impact an ETS in Australia will have on the market valuation of Australian Securities Exchange (ASX) firms. This is the first empirical study into the pricing effects of the ETS in Australia. Primarily, we hypothesize that firm value will be negatively related to a firm's carbon intensity profile. That is, there will be a greater impact on firm value for high carbon emitters in the period prior (2007) to the introduction of the ETS, whether for reasons relating to the existence of unbooked liabilities associated with future compliance and/or abatement costs, or for reasons relating to reduced future earnings. Using a sample of 58 Australian listed firms (constrained by the current availability of emissions data) which comprise larger, more profitable and less risky listed Australian firms, we first undertake an event study focusing on five distinct information events argued to impact the probability of the proposed ETS being enacted. Here, we find direct evidence that the capital market is indeed pricing the proposed ETS. Second, using a modified version of the Ohlson ( 1995 ) valuation model, we undertake a valuation analysis designed not only to complement the event study results, but more importantly to provide insights into the capital market's assessment of the magnitude of the economic impact of the proposed ETS as reflected in market capitalization. Here, our results show that the market assesses the most carbon intensive sample firms a market value decrement relative to other sample firms of between 7% and 10% of market capitalization. Further, based on the carbon emission profile of the sample firms we imply a ‘future carbon permit price’ of between AUD$17 per tonne and AUD$26 per tonne of carbon dioxide emitted. This study is more precise than industry reports, which set a carbon price of between AUD$15 to AUD$74 per tonne.     

创新内含碳中和目标的结构性货币政策

2020年9月,我国提出努力争取2060年前实现碳中和,宣示了向低碳经济转型的战略。在实现碳中和目标过程中,货币政策起着极其重要的金融稳定、风险防控、融资引导作用,也将在其间经历相应调整。本文归纳总结了目前国内外对结构性货币政策的理论探讨和政策实践,分析了构建与碳中和一致的结构性货币政策的必要性,提出在碳中和目标下货币政策应采取更为积极的立场主动促进经济低碳转型,走向包含碳中和目标的结构性货币政策。本文同时讨论了构建与碳中和一致的结构性货币政策框架面临的理论和政策挑战,并提出了相关政策建议。     

Measuring climate policy stringency: a shadow price approach

To assess the effect of environmental policy on production structures, trade structures, or foreign direct investment, a measure for the stringency of policy is necessary. Measures typically used in empirical studies share several disadvantages: they are not available on a sectoral basis to reflect concerns of industry competitiveness; they are not available for a wide range of countries to allow for international comparisons; or they are not broad enough to reflect the multidimensionality of environmental policy. This paper develops a thorough, internationally comparable, sector-specific measure of multidimensional climate policy stringency where a shadow price approach serves as a basis. The approach is applied to climate policy by determining sector-specific emission-relevant energy costs on the basis of the sectors’ usage of emission-relevant energy carriers and the carriers’ respective prices. The resulting shadow price estimates are heterogeneous and can be applied in future research to test for carbon leakage and pollution havens.     

Modeling the relationship between European carbon permits and certified emission reductions

Recent years have seen an expansion of carbon markets around the world as various policymakers attempt to reduce CO2 emissions. This paper considers two of the major types of carbon permits: European Union Allowances (EUAs, arising from the European Union Emissions Trading Scheme, EU ETS) and certified emissions reductions (CERs, arising from agreements made under the Kyoto Protocol). The rules of the EU ETS allow for some use of CERs in place of EUAs by EU firms, but this substitutability is only partial. Allowing for carbon permits from different sources to substitute for one another should help achieve CO2 emissions reductions at least cost. Understanding the degree and nature of linkages (if any) between the markets for EUAs and CER is, thus, an important policy issue. In this paper, we jointly model the spot and future prices of an EUA along with the price of a CER using flexible multivariate time series methods which allow for time-variation in parameters. We find evidence of contemporaneous causality between these three variables with the EUA futures price playing the dominant role in driving this relationship. We also document time-variation in this relationship which is associated with macroeconomic events such as the financial crisis of late 2008 and early 2009. We find very little evidence of volatility spillovers or of Granger causality among any of the variables. We discuss how these empirical findings are consistent with markets which are loosely linked, but are not tightly linked as would be found for perfectly substitutable assets in efficient financial markets.     

Carbon Cap-and-Trade in China: A Comprehensive Framework

This article proposes a comprehensive framework to explore a possible carbon cap-and-trade scheme in China. By applying the case of China, our empirical results present the demand side and supply side of carbon-emission permits in the market and several other significant findings: (i) carbon dioxide (CO₂) marginal abatement cost varies a lot among different regions; (ii) in total, CO₂ emissions could have been reduced by 5.14 billion tons if all the provinces had achieved their anticipated environmental performance during 1997–2014; (iii) the equilibrium price of CO₂ trading is 241 RMB/ton, irrelevant to the original allocation of allowances.     

Designing a U.S. Market for CO2

The United States may soon have a market for carbon. If so, that market will grow out of a cap-and-trade system like the EU's Emissions Trading System for CO₂ or the U.S. Acid Rain Program for SO₂.
This article reviews the historical performance of these two markets, with particular focus on how the flexibility afforded by, as well as restrictions on, the "banking" and borrowing of allowances has affected the evolution of prices. While both markets have generally functioned well, four episodes are used to illustrate the importance of designing the rules to encourage such flexibility.
The 2005 opening of the EU CO₂ market was marked by a surprisingly high price, one that resulted from a delay in institutions with long positions in allowances ("longs") bringing supply to the market.
The 2007 close of the first phase produced a sharp divergence between the spot price at the end of 2007 and the futures price for 2008, reflecting the restriction against carrying over (or "banking") allowances from one phase to the next.
The U.S. SO₂ market's transition to a tighter system in 2000 avoided such a divergence by allowing unlimited banking of allowances into the second phase.
In 2005-2006, the U.S. SO₂ market experienced a surprising price spike attributable to a combination of changing fundamentals and institutional features (notably, the tax treatment of "longs") that undermined the flexibility of the bank.