Carbon Markets in China: Development and Challenges

Carbon Trading: Who Gets What, When, and How?

What explains the choice of corporate political strategy in environmental politics? Drawing on recent models of actor strategy formation in political economy, this article argues that basic material interests of firms are translated into strategies in the context of institutional environments. I advance a typological model that posits how distributional effects—positive versus negative—and perceived regulatory pressure—low versus high—interact in leading firms to adopt one of four ideal-type strategies: opposition, hedging, support, and non-participation. This article examines the model through the case of corporate strategies in the making of the European Union’s Emission Trading Scheme. The article contributes to theory-building on business strategy in environmental politics by offering a probabilistic explanatory model, and it flags hedging strategies as an increasingly prevalent form of business behavior.

Carbon markets devolve governance to external institutions and displace power from sovereign states. Major producers in these markets, notably China, have expressed concern about the adverse implications for national interests and sovereignty associated with selling off the rights to emit carbon emissions abroad. This article suggests that such concern has shaped the discursive context in which emission trading schemes have gained popularity in the country. Our discourse analysis shows that notions of market power are made manifest as a powerful storyline. In the Chinese language, “power,” “sovereignty,” and “rights” all use the same character. The storyline captures all these expressions and allows for a positive view about active engagement in carbon trading as a way to protect development rights and redeem carbon sovereignty. Thus, the contested policy of emissions trading becomes embedded in the more appealing narrative of national development and made politically attractive, despite unfavorable realities against it.

The Kyoto Protocol aims to present three flexible implementation mechanisms in an effort to address climate change, and thus generate a market incorporating carbon emissions as a product: joint implementation ( JI ); a clean development mechanism ( CDM ); and an international emissions trade ( IET ). The carbon market has rapidly developed and expanded to become the new star of global trade: in 2011, trading volume stood at 10.3 billion tCO 2 , with transactions amounting to $176 billion. Some current regional carbon markets include the European Union Emission Trading Scheme ( EU ETS ), the New South Wales ( NSW ), and the Regional Greenhouse Gas Initiative ( RGGI ); China has also tried to establish a domestic carbon trading market and has been piloting a carbon emission trading scheme since 2011. Carbon pricing lies at the heart of carbon market operation; therefore, this article analyzes challenging issues in today's carbon markets, including allowances, energy prices, and special events and also provides policy recommendations for establishing a carbon trading market.

Carbon pricing is about the explicit pricing of greenhouse gas (GHG) emissions, of which carbon dioxide is the most important. GHG emissions, which are normally measured in tonnes of carbon dioxide equivalent units, are responsible for global warming and hence the greatest environmental externality of our age. Carbon pricing is a mechanism for making society account for the external damage caused by carbon emissions in economic decision making. There are two main ways of pricing carbon dioxide emissions, either via a carbon tax or via the introduction of an emissions trading scheme whereby those emitting carbon into the atmosphere are required to surrender permits which reflect the quantity of emissions they are responsible for. These emission permits are tradeable and hence command a price and, in some respects, operate in a similar way to a carbon tax. Thus, we will discuss both carbon pricing and emissions trading, as the literature on both is closely related. Emissions trading exists for certain other pollutants (such as sulphur dioxide) and we will discuss some of the literature related to this. However, most of the literature on emissions trading relates to carbon dioxide emissions, as these are by far the most valuable traded emissions globally. The literature on carbon pricing and emissions trading is wide ranging and constantly being updated with new analyses. Much of the literature is written by economists who are seeking to apply market-based approaches to the solution of environmental problems. The article starts by looking at the general context in which carbon pricing and emissions trading sits before discussing introductory texts which relate to the subject and going on to introduce the relevant classic literature in environmental economics. It then proceeds to more applied literature, beginning with discussions of early examples of emissions trading and carbon taxation, before continuing to studies of the impact of carbon pricing and emissions trading and those which explain the nature of the schemes we observe. The article continues with literature which looks at the Europe Union Emissions Trading Scheme (EU ETS) for GHGs and other important carbon pricing schemes. It then moves on to the literature on the prospects for a global carbon price, on interactions with other climate policies, on distributional concerns about the imposition of a price on carbon. Finally, it concludes with an introduction to relevant official publications and sources of data on carbon emissions and carbon prices.

Assessing the operational performance and maturity of the carbon trading pilot program: The case study of Beijing’s carbon market

This chapter discusses the linking of emissions trading regimes for climate change governance. It also assesses the legal frameworks for linking as the process assumes varying degrees of formality, with implications for the legal nature and the procedural requirements of adoption. Linkage results in an enlarged market, promising greater diversity of abatement costs and thus more efficient achievement of climate change mitigation objectives. Linkage is also credited with promoting liquidity and reduced price volatility in the carbon market, helping reduce the likelihood of manipulation and abuse. These results lead to operation in a multilayered framework of established rules, principles, and procedures constituting the legal order. Carbon markets are highly regulated, and this relevance of norms also extends to a linkage between such markets. The chapter analyses past and current trading schemes as a case study, such as the European Union Emission Trading Scheme, the biggest greenhouse gas emissions trading scheme.

Operating and Financial Investments by European Utilities Over 2004-2009: What Role for European Mitigation Policies?

Carbon emissions trading is being used by more and more countries or regions to solve the global warming problem. The establishment of China’s carbon market mechanism is still under exploration and improvement. This paper focuses on the price determination mechanism in the carbon market. Based on the price theories, we analyze the theoretical basis of the carbon price formation and the carbon price transmission mechanism from the perspective of the agents that affect carbon price. From these angles including residents’ demands, enterprises’ actual emissions and indirect effects on residents’ demands, the government’s setting for carbon market institutions and indirect effects on residents and enterprises, as well as energy markets and financial markets, we analyze how these factors influence the carbon price. In turn, we discuss how carbon price affects the enterprise costs, energy-saving technologies and residents’ welfare. Besides, we summarize the current price mechanism of domestic and overseas major carbon markets. Finally, based on the current research on carbon price theory and its influencing factors, we also present some further directions on carbon price mechanism and influencing factors including China’s carbon market price mechanism design, the quantitative analysis of carbon price factors and improvement of carbon price theory.

This study examines the risk spillover effects between carbon market and commodity markets in China, using the DCC-GARCH Copula CoVaR model. Specifically, accounting for the dynamic correlations across markets, we analyze both downside and upside risk spillovers to provide a comprehensive assessment of cross-market interactions. Our results reveal significant downside risk spillovers between the carbon market and commodity markets such as cereals, noble metals, chemical engineering, soft commodities, oil and oilseeds, and agricultural and sideline products. In contrast, the upside risk spillovers are not significant, highlighting the asymmetric risk spillover effects between the carbon market and commodity markets. Moreover, the carbon market exhibits one-way risk spillovers to nonmetallic building materials and non-ferrous metals, underscoring the heterogeneity of risk spillovers. To validate the reliability of our findings, we conduct additional robustness tests using alternative modeling strategies and sub-sample analysis, both of which confirm the presence of asymmetric risk spillovers. Our study provides valuable insights for policymakers and investors in designing targeted risk management and portfolio strategies.

With the serious worldwide problem of carbon emissions, carbon emissions’ control and trade have become necessary policies adopted by the governments, after the establishment of the EU Emissions Trading System (EU ETS), China has also implemented a similar carbon emission trading pilot policy which plays a vital role in environmental regulation and influences enterprise behaviors, so this paper will put more focus on the impact of this policy on the enterprise innovation. In this paper, we construct a theoretical model and use the “Chinese Carbon Emissions Trading Pilot Policy” as a quasi-natural experiment to accurately identify the net causal effect of this environmental policy on enterprise innovation. Moreover, we use the synthetic control and difference-in-differences methods to eliminate the endogeneity to a large extent and conduct the robustness tests, difference-in-differences method, placebo test, and permutation test to respectively confirm these results. The results show that the implementation of carbon emissions trading policy will significantly reduce the enterprise innovation in general, this conclusion is contrary to the EU ETS’s effect, which is confirmed by plenty of previous empirical study. However, this policy has different effects across enterprises of different industries and different types of innovation. It can promote enterprise innovation of environmental industry, but it will inhibit enterprise innovation of non-environmental industry; besides, it can promote the development of green technical innovation and inhibit non-green technical innovation, which is basically identical to the causal effect of EU ETS.

Identifying price bubbles in global carbon markets: Evidence from the SADF test, GSADF test and LPPLS method

The impact of economic policy uncertainties on the volatility of European carbon market

Carbon Pricing: Design, Experiences and Issues, edited by LarryKreiser, MikaelAndersen, BirgitteOlsen, StefanSpeck, JanetMilne and HopeAshiabor. Published by Edward Elgar Publishing, Cheltenham, UK, 2015, 256 pages. ISBN: 9781785360220, ₤75.

This study analyses the financialisation of the carbon market and its possible external shocks, with a focus on the European Union Emissions Trading System (EU ETS), by investigating its quantile dependence and influence paths from stage three onwards. To achieve this, we construct a theoretical model of five factors related to the financialisation of the carbon market and empirically investigate the significant influencing factors and their influence paths under different quantiles using quantile group Least Absolute Shrinkage and Selection Operator (LASSO) and quantile regression models. We find that the price of WTI crude oil and the market risk‐aversion index have a significant effect on the financialisation of the EU ETS at extremely high quantiles. Factors such as the WTI crude oil price, precipitation, average share price of thermal power companies, and the federal funds rate have a statistically significant impact on the medium quantiles. However, we find no significant influence at extremely low quantiles, indicating that policy instruments are necessary to effectively regulate the operation of the carbon market. Therefore, it is crucial for carbon market stakeholders to pay close attention to these factors and adapt to changing market conditions.