IDEAS home Printed from https://ideas.repec.org/a/eee/appene/v208y2017icp1452-1467.html
   My bibliography  Save this article

Dynamics of China’s carbon prices in the pilot trading phase

Author

Listed:
  • Fan, John Hua
  • Todorova, Neda

Abstract

This paper is the first to investigate empirically the link between carbon prices and macro risks in China’s cap-and-trade pilot scheme. Using data from four pilot markets in Beijing, Guangdong, Hubei, and Shenzhen from 2014 to 2016, we demonstrate that the carbon price in Hubei is weakly linked to international prices of natural gas. Our results also indicate that energy, utilities, industrial and materials sector indices are positively related to the allowance prices in Shenzhen and Guangdong, suggesting that higher emitters in the region may have factored the carbon price into their production mix. We find no statistically significant relationship in the Beijing pilot. Overall, the findings suggest that China’s carbon market is currently in an early stage of development, as the carbon price fundamentals are weak and the markets are comparatively less efficient than the European trading scheme in an informational sense. The findings of the paper have policy implications for the upcoming integration of regional markets into the national carbon market.

Suggested Citation

  • Fan, John Hua & Todorova, Neda, 2017. "Dynamics of China’s carbon prices in the pilot trading phase," Applied Energy, Elsevier, vol. 208(C), pages 1452-1467.
    • Handle: RePEc:eee:appene:v:208:y:2017:i:c:p:1452-1467
    DOI: 10.1016/j.apenergy.2017.09.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0306261917312801
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.apenergy.2017.09.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Zhongxiang Zhang, 2015. "Carbon emissions trading in China: the evolution from pilots to a nationwide scheme," Climate Policy, Taylor & Francis Journals, vol. 15(sup1), pages 104-126, December.
    2. Chevallier, Julien, 2009. "Carbon futures and macroeconomic risk factors: A view from the EU ETS," Energy Economics, Elsevier, vol. 31(4), pages 614-625, July.
    3. Lutz, Benjamin Johannes & Pigorsch, Uta & Rotfuß, Waldemar, 2013. "Nonlinearity in cap-and-trade systems: The EUA price and its fundamentals," Energy Economics, Elsevier, vol. 40(C), pages 222-232.
    4. repec:dau:papers:123456789/4222 is not listed on IDEAS
    5. Creti, Anna & Jouvet, Pierre-André & Mignon, Valérie, 2012. "Carbon price drivers: Phase I versus Phase II equilibrium?," Energy Economics, Elsevier, vol. 34(1), pages 327-334.
    6. Cong, Ren & Lo, Alex Y., 2017. "Emission trading and carbon market performance in Shenzhen, China," Applied Energy, Elsevier, vol. 193(C), pages 414-425.
    7. Eugenia Sanin, María & Violante, Francesco & Mansanet-Bataller, María, 2015. "Understanding volatility dynamics in the EU-ETS market," Energy Policy, Elsevier, vol. 82(C), pages 321-331.
    8. Oberndorfer, Ulrich, 2009. "EU Emission Allowances and the stock market: Evidence from the electricity industry," Ecological Economics, Elsevier, vol. 68(4), pages 1116-1126, February.
    9. Rannou, Yves & Barneto, Pascal, 2016. "Futures trading with information asymmetry and OTC predominance: Another look at the volume/volatility relations in the European carbon markets," Energy Economics, Elsevier, vol. 53(C), pages 159-174.
    10. Benz, Eva & Trück, Stefan, 2009. "Modeling the price dynamics of CO2 emission allowances," Energy Economics, Elsevier, vol. 31(1), pages 4-15, January.
    11. Hitzemann, Steffen & Uhrig-Homburg, Marliese & Ehrhart, Karl-Martin, 2015. "Emission permits and the announcement of realized emissions: Price impact, trading volume, and volatilities," Energy Economics, Elsevier, vol. 51(C), pages 560-569.
    12. Julián Andrada-Félix & Adrian Fernandez-Perez & Simón Sosvilla-Rivero, 2018. "Fear connectedness among asset classes," Applied Economics, Taylor & Francis Journals, vol. 50(39), pages 4234-4249, August.
    13. Cong, Rong-Gang & Wei, Yi-Ming, 2010. "Potential impact of (CET) carbon emissions trading on China’s power sector: A perspective from different allowance allocation options," Energy, Elsevier, vol. 35(9), pages 3921-3931.
    14. Declercq, Bruno & Delarue, Erik & D'haeseleer, William, 2011. "Impact of the economic recession on the European power sector's CO2 emissions," Energy Policy, Elsevier, vol. 39(3), pages 1677-1686, March.
    15. Soosung Hwang & Pedro L. Valls Pereira, 2006. "Small sample properties of GARCH estimates and persistence," The European Journal of Finance, Taylor & Francis Journals, vol. 12(6-7), pages 473-494.
    16. Maria Mansanet-Bataller & Angel Pardo & Enric Valor, 2007. "CO2 Prices, Energy and Weather," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 73-92.
    17. Wu, Rui & Dai, Hancheng & Geng, Yong & Xie, Yang & Masui, Toshihiko & Tian, Xu, 2016. "Achieving China’s INDC through carbon cap-and-trade: Insights from Shanghai," Applied Energy, Elsevier, vol. 184(C), pages 1114-1122.
    18. Tang, Weiqi & Wu, Libo, 2013. "Efficiency or Equity? Simulating the Carbon Emission Permits Trading Schemes in China Based on an Inter-Regional CGE Model," Conference papers 332325, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    19. repec:dau:papers:123456789/5269 is not listed on IDEAS
    20. Crossland, Jarrod & Li, Bin & Roca, Eduardo, 2013. "Is the European Union Emissions Trading Scheme (EU ETS) informationally efficient? Evidence from momentum-based trading strategies," Applied Energy, Elsevier, vol. 109(C), pages 10-23.
    21. repec:dau:papers:123456789/4210 is not listed on IDEAS
    22. Paolella, Marc S. & Taschini, Luca, 2008. "An econometric analysis of emission allowance prices," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2022-2032, October.
    23. Lo Prete, Chiara & Norman, Catherine S., 2013. "Rockets and feathers in power futures markets? Evidence from the second phase of the EU ETS," Energy Economics, Elsevier, vol. 36(C), pages 312-321.
    24. Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 129-152, Spring.
    25. Xiong, Ling & Shen, Bo & Qi, Shaozhou & Price, Lynn & Ye, Bin, 2017. "The allowance mechanism of China’s carbon trading pilots: A comparative analysis with schemes in EU and California," Applied Energy, Elsevier, vol. 185(P2), pages 1849-1859.
    26. Montagnoli, Alberto & de Vries, Frans P., 2010. "Carbon trading thickness and market efficiency," Energy Economics, Elsevier, vol. 32(6), pages 1331-1336, November.
    27. Bredin, Don & Muckley, Cal, 2011. "An emerging equilibrium in the EU emissions trading scheme," Energy Economics, Elsevier, vol. 33(2), pages 353-362, March.
    28. repec:dau:papers:123456789/5110 is not listed on IDEAS
    29. Worrell, Ernst & Price, Lynn & Martin, Nathan & Farla, Jacco & Schaeffer, Roberto, 1997. "Energy intensity in the iron and steel industry: a comparison of physical and economic indicators," Energy Policy, Elsevier, vol. 25(7-9), pages 727-744.
    30. Kempf, Alexander & Korn, Olaf & Uhrig-Homburg, Marliese, 2012. "The term structure of illiquidity premia," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1381-1391.
    31. Aatola, Piia & Ollikainen, Markku & Toppinen, Anne, 2013. "Price determination in the EU ETS market: Theory and econometric analysis with market fundamentals," Energy Economics, Elsevier, vol. 36(C), pages 380-395.
    32. Maghyereh, Aktham I. & Awartani, Basel & Bouri, Elie, 2016. "The directional volatility connectedness between crude oil and equity markets: New evidence from implied volatility indexes," Energy Economics, Elsevier, vol. 57(C), pages 78-93.
    33. Åsa L�fgren & Markus Wr�ke & Tomas Hagberg & Susanna Roth, 2014. "Why the EU ETS needs reforming: an empirical analysis of the impact on company investments," Climate Policy, Taylor & Francis Journals, vol. 14(5), pages 537-558, September.
    34. Price, L & Sinton, J & Worrell, E & Phylipsen, D & Xiulian, H & Ji, L, 2002. "Energy use and carbon dioxide emissions from steel production in China," Energy, Elsevier, vol. 27(5), pages 429-446.
    35. Beat Hintermann & Sonja Peterson & Wilfried Rickels, 2016. "Price and Market Behavior in Phase II of the EU ETS: A Review of the Literature," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 10(1), pages 108-128.
    36. Ye, Bin & Jiang, JingJing & Li, Changsheng & Miao, Lixin & Tang, Jie, 2017. "Quantification and driving force analysis of provincial-level carbon emissions in China," Applied Energy, Elsevier, vol. 198(C), pages 223-238.
    37. Zhang, Cheng & Wang, Qunwei & Shi, Dan & Li, Pengfei & Cai, Wanhuan, 2016. "Scenario-based potential effects of carbon trading in China: An integrated approach," Applied Energy, Elsevier, vol. 182(C), pages 177-190.
    38. Aguilera, Roberto F. & Inchauspe, Julian & Ripple, Ronald D., 2014. "The Asia Pacific natural gas market: Large enough for all?," Energy Policy, Elsevier, vol. 65(C), pages 1-6.
    39. Delarue, E.D. & Ellerman, A.D. & D'haeseleer, W.D., 2010. "Robust MACCs? The topography of abatement by fuel switching in the European power sector," Energy, Elsevier, vol. 35(3), pages 1465-1475.
    40. Veith, Stefan & Werner, Jörg R. & Zimmermann, Jochen, 2009. "Capital market response to emission rights returns: Evidence from the European power sector," Energy Economics, Elsevier, vol. 31(4), pages 605-613, July.
    41. Li, Wei & Lu, Can & Ding, Yi & Zhang, Yan-Wu, 2017. "The impacts of policy mix for resolving overcapacity in heavy chemical industry and operating national carbon emission trading market in China," Applied Energy, Elsevier, vol. 204(C), pages 509-524.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Yangfan & Zhang, Xiaoyun, 2023. "Recycling scheme of carbon pricing for inclusive decarbonization and energy transition: A recursive computable general equilibrium analysis in China," Renewable Energy, Elsevier, vol. 217(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cretí, Anna & Joëts, Marc, 2017. "Multiple bubbles in the European Union Emission Trading Scheme," Energy Policy, Elsevier, vol. 107(C), pages 119-130.
    2. Friedrich, Marina & Mauer, Eva-Maria & Pahle, Michael & Tietjen, Oliver, 2020. "From fundamentals to financial assets: the evolution of understanding price formation in the EU ETS," EconStor Preprints 196150, ZBW - Leibniz Information Centre for Economics, revised 2020.
    3. Gavard, Claire & Kirat, Djamel, 2018. "Flexibility in the market for international carbon credits and price dynamics difference with European allowances," Energy Economics, Elsevier, vol. 76(C), pages 504-518.
    4. Tan, Xue-Ping & Wang, Xin-Yu, 2017. "Dependence changes between the carbon price and its fundamentals: A quantile regression approach," Applied Energy, Elsevier, vol. 190(C), pages 306-325.
    5. Hintermann, Beat & Peterson, Sonja & Rickels, Wilfried, 2014. "Price and market behavior in Phase II of the EU ETS," Kiel Working Papers 1962, Kiel Institute for the World Economy (IfW Kiel).
    6. Duan, Kun & Ren, Xiaohang & Shi, Yukun & Mishra, Tapas & Yan, Cheng, 2021. "The marginal impacts of energy prices on carbon price variations: Evidence from a quantile-on-quantile approach," Energy Economics, Elsevier, vol. 95(C).
    7. Koch, Nicolas & Fuss, Sabine & Grosjean, Godefroy & Edenhofer, Ottmar, 2014. "Causes of the EU ETS price drop: Recession, CDM, renewable policies or a bit of everything?—New evidence," Energy Policy, Elsevier, vol. 73(C), pages 676-685.
    8. Medina, Vicente & Pardo, Ángel & Pascual, Roberto, 2014. "The timeline of trading frictions in the European carbon market," Energy Economics, Elsevier, vol. 42(C), pages 378-394.
    9. Lutz, Benjamin Johannes & Pigorsch, Uta & Rotfuß, Waldemar, 2013. "Nonlinearity in cap-and-trade systems: The EUA price and its fundamentals," Energy Economics, Elsevier, vol. 40(C), pages 222-232.
    10. Federico Galán-Valdivieso & Elena Villar-Rubio & María-Dolores Huete-Morales, 2018. "The erratic behaviour of the EU ETS on the path towards consolidation and price stability," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 18(5), pages 689-706, October.
    11. Chevallier, Julien, 2011. "A model of carbon price interactions with macroeconomic and energy dynamics," Energy Economics, Elsevier, vol. 33(6), pages 1295-1312.
    12. Segnon, Mawuli & Lux, Thomas & Gupta, Rangan, 2017. "Modeling and forecasting the volatility of carbon dioxide emission allowance prices: A review and comparison of modern volatility models," Renewable and Sustainable Energy Reviews, Elsevier, vol. 69(C), pages 692-704.
    13. Fang, Sheng & Lu, Xinsheng & Li, Jianfeng & Qu, Ling, 2018. "Multifractal detrended cross-correlation analysis of carbon emission allowance and stock returns," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 509(C), pages 551-566.
    14. Wen, Xiaoqian & Bouri, Elie & Roubaud, David, 2017. "Can energy commodity futures add to the value of carbon assets?," Economic Modelling, Elsevier, vol. 62(C), pages 194-206.
    15. Huang, Wenyang & Wang, Huiwen & Wei, Yigang, 2023. "Identifying the determinants of European carbon allowances prices: A novel robust partial least squares method for open-high-low-close data," International Review of Financial Analysis, Elsevier, vol. 90(C).
    16. Chevallier, Julien, 2011. "Evaluating the carbon-macroeconomy relationship: Evidence from threshold vector error-correction and Markov-switching VAR models," Economic Modelling, Elsevier, vol. 28(6), pages 2634-2656.
    17. Lovcha, Yuliya & Perez-Laborda, Alejandro & Sikora, Iryna, 2022. "The determinants of CO2 prices in the EU emission trading system," Applied Energy, Elsevier, vol. 305(C).
    18. Narayan, Paresh Kumar & Sharma, Susan Sunila, 2015. "Is carbon emissions trading profitable?," Economic Modelling, Elsevier, vol. 47(C), pages 84-92.
    19. Huang, Wenyang & Zhao, Jianyu & Wang, Xiaokang, 2024. "Model-driven multimodal LSTM-CNN for unbiased structural forecasting of European Union allowances open-high-low-close price," Energy Economics, Elsevier, vol. 132(C).
    20. Hammoudeh, Shawkat & Nguyen, Duc Khuong & Sousa, Ricardo M., 2014. "What explain the short-term dynamics of the prices of CO2 emissions?," Energy Economics, Elsevier, vol. 46(C), pages 122-135.

    More about this item

    Keywords

    Carbon emissions; China; ETS; Energy; Financial risks;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:appene:v:208:y:2017:i:c:p:1452-1467. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.