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Assessing the impact of ETS trading profit on emission abatements based on firm-level transactions

Author

Listed:
  • Jianfeng Guo

    (Chinese Academy of Sciences
    University of Chinese Academy of Sciences)

  • Fu Gu

    (Zhejiang University
    Zhejiang University)

  • Yinpeng Liu

    (Chinese Academy of Sciences
    University of Chinese Academy of Sciences)

  • Xi Liang

    (The University of Edinburgh)

  • Jianlei Mo

    (Chinese Academy of Sciences
    University of Chinese Academy of Sciences)

  • Ying Fan

    (Beihang University)

Abstract

The EU Emission Trading System (ETS) is the oldest and currently the largest carbon market in the world, but its purpose of stimulating carbon emissions via trading profits remains unexamined. Based on the complete firm-level transaction records of the EU ETS Phases I and II, here we show that the participating firms’ trading profits and their emission abatements are positively correlated, and the correlation becomes stronger in Phase II than Phase I. Specifically, we observe that non-linearity exists in the correlation; higher firm-level emission abatements can realize larger trading profits. This pattern affects the market fairness, though it may be helpful to incentivise emission abatements. The correlation is more regulated in Phase II than it is in Phase I, thereby indicating that the Phase II is more mature. We also observe that the state-level abatements are largely driven by industrial giants.

Suggested Citation

  • Jianfeng Guo & Fu Gu & Yinpeng Liu & Xi Liang & Jianlei Mo & Ying Fan, 2020. "Assessing the impact of ETS trading profit on emission abatements based on firm-level transactions," Nature Communications, Nature, vol. 11(1), pages 1-8, December.
    • Handle: RePEc:nat:natcom:v:11:y:2020:i:1:d:10.1038_s41467-020-15996-1
    DOI: 10.1038/s41467-020-15996-1
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    Cited by:

    1. Wu, Qingyang & Wang, Yanying, 2022. "How does carbon emission price stimulate enterprises' total factor productivity? Insights from China's emission trading scheme pilots," Energy Economics, Elsevier, vol. 109(C).
    2. Dai, Peng-Fei & Xiong, Xiong & Duc Huynh, Toan Luu & Wang, Jiqiang, 2022. "The impact of economic policy uncertainties on the volatility of European carbon market," Journal of Commodity Markets, Elsevier, vol. 26(C).
    3. Jiqiang Wang & Yinpeng Liu & Ying Fan & Jianfeng Guo, 2020. "The Impact of Industry on European Union Emissions Trading Market—From Network Perspective," Energies, MDPI, vol. 13(21), pages 1-16, October.
    4. Zeyu Xie & Mian Yang & Fei Xu, 2023. "Carbon emission trading system and stock price crash risk of heavily polluting listed companies in China: based on analyst coverage mechanism," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-30, December.
    5. Wu, Jie & Fan, Ying & Timilsina, Govinda & Xia, Yan, 2022. "Exploiting Complementarity of Carbon Pricing Instruments for Low-Carbon Development in the People’s Republic of China," ADBI Working Papers 1329, Asian Development Bank Institute.
    6. Liu, Jing-Yue & Zhang, Yue-Jun, 2021. "Has carbon emissions trading system promoted non-fossil energy development in China?," Applied Energy, Elsevier, vol. 302(C).
    7. Panagiotis Koromilas & Angeliki Mathioudaki & Sotirios Dimos & Dimitris Fotakis, 2023. "Modeling Intertemporal Trading of Emission Permits Under Market Power," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 84(1), pages 241-278, January.
    8. Chun, Dohyun & Cho, Hoon & Kim, Jihun, 2022. "The relationship between carbon-intensive fuel and renewable energy stock prices under the emissions trading system," Energy Economics, Elsevier, vol. 114(C).
    9. Vlad-Cosmin Bulai & Alexandra Horobet & Oana Cristina Popovici & Lucian Belascu & Sofia Adriana Dumitrescu, 2021. "A VaR-Based Methodology for Assessing Carbon Price Risk across European Union Economic Sectors," Energies, MDPI, vol. 14(24), pages 1-21, December.
    10. Li, Dan & Li, Yijun & Wang, Chaoqun & Chen, Min & Wu, Qi, 2023. "Forecasting carbon prices based on real-time decomposition and causal temporal convolutional networks," Applied Energy, Elsevier, vol. 331(C).
    11. Jan Abrell & Johanna Cludius & Sascha Lehmann & Joachim Schleich & Regina Betz, 2022. "Corporate Emissions-Trading Behaviour During the First Decade of the EU ETS," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 83(1), pages 47-83, September.
    12. 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.
    13. Consoli, Davide & Costantini, Valeria & Paglialunga, Elena, 2023. "We're in this together: Sustainable energy and economic competitiveness in the EU," Research Policy, Elsevier, vol. 52(1).
    14. Hao, Xinyu & Sun, Wen & Zhang, Xiaoling, 2023. "How does a scarcer allowance remake the carbon market? An evolutionary game analysis from the perspective of stakeholders," Energy, Elsevier, vol. 280(C).

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