IDEAS home Printed from https://ideas.repec.org/a/eco/journ2/v15y2025i6id21072.html

Forecasting Carbon Emission Allowance Prices With Deep Learning Models

Author

Listed:
  • Unal, Pinar

    (Department of International Finance, Faculty of Economics, Administrative and Social Sciences, Bahcesehir University, Istanbul, Turkiye)

  • Guner, Seyma Nur

    (Department of Economics, Faculty of Economics, Administrative and Social Sciences, Karabuk University, Karabuk, Turkiye)

Abstract

As the effects of the climate crisis deepen, the measures taken against it are increasing. These precautionary mechanisms significantly affect companies. One of these mechanisms is carbon trading systems, which limit companies' carbon emissions. These systems create additional costs for companies, and predicting these potential costs is crucial today. For this reason, the importance of correctly estimating carbon permit prices has increased. To estimate carbon permit prices, the correct variables must first be determined. Many factors affect the carbon markets due to their complex nature. Using the correct estimation method is another important issue. Traditional econometric models cannot clearly explain the complex structure of the carbon market, resulting in low accuracy. In this direction, artificial intelligence-based estimation models have been developed to estimate carbon permit prices. This study estimated the prices of European Union Emissions Allowances (EUA) using energy and power market prices and the economic outlook. The estimation model utilized deep learning algorithms, which are feedforward neural networks and recurrent neural networks (Elman). As a result of the study, both models were successful, and strong accuracy was obtained. While the FFNN model provided more stable and low-variance results, the Elman model provided advantages in short-term predictions.

Suggested Citation

  • Unal, Pinar & Guner, Seyma Nur, 2025. "Forecasting Carbon Emission Allowance Prices With Deep Learning Models," International Journal of Energy Economics and Policy, International Journal of Energy Economics and Policy, vol. 15(6), pages 531-542, October.
  • Handle: RePEc:eco:journ2:v:15:y:2025:i:6:id:21072
    DOI: 10.32479/ijeep.21072
    as

    Download full text from publisher

    File URL: https://econjournals.com/index.php/ijeep/article/download/21072/9377
    Download Restriction: no

    File URL: https://libkey.io/10.32479/ijeep.21072?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
    ---><---

    References listed on IDEAS

    as
    1. Bangzhu Zhu & Xuetao Shi & Julien Chevallier & Ping Wang & Yi‐Ming Wei, 2016. "An Adaptive Multiscale Ensemble Learning Paradigm for Nonstationary and Nonlinear Energy Price Time Series Forecasting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 35(7), pages 633-651, November.
    2. Pinar Unal, 2025. "The Interrelation Between the Carbon Trading Systems and Energy Markets and Economic Outlook: A Comparative Analysis Using VECM and ARDL," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 145-169.
    3. 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.
    4. 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.
    5. 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.
    6. Byun, Suk Joon & Cho, Hangjun, 2013. "Forecasting carbon futures volatility using GARCH models with energy volatilities," Energy Economics, Elsevier, vol. 40(C), pages 207-221.
    Full references (including those not matched with items on IDEAS)

    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. 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.
    2. 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).
    3. Huang, Zhehao & Dong, Hao & Jia, Shuaishuai, 2022. "Equilibrium pricing for carbon emission in response to the target of carbon emission peaking," Energy Economics, Elsevier, vol. 112(C).
    4. Yue Xu & Dayu Zhai, 2022. "Impact of Changes in Membership on Prices of a Unified Carbon Market: Case Study of the European Union Emissions Trading System," Sustainability, MDPI, vol. 14(21), pages 1-16, October.
    5. Jianjie Huang & Kazeem O. Isah & Oladotun D. Olaniran & Mohammed N. Ibrahim, 2026. "Revisiting the Framework for Modelling Carbon Allowances: The Role of Speculation in Some Forecasting Experiment?," Australian Economic Papers, Wiley Blackwell, vol. 65(1), pages 59-71, March.
    6. Bangzhu Zhu & Shunxin Ye & Ping Wang & Julien Chevallier & Yi‐Ming Wei, 2022. "Forecasting carbon price using a multi‐objective least squares support vector machine with mixture kernels," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(1), pages 100-117, January.
    7. Konstantinos Bisiotis & Dimitris Christopoulos & George Tzougas, 2026. "Forecasting Carbon Prices: A Literature Review," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 45(2), pages 496-529, March.
    8. 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.
    9. 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.
    10. Weibao Sun & Yafang Gao & Xuemei Yang & Yalong Zhang & Haolin Hu, 2025. "Carbon Price Forecasting and Market Characteristics Analysis in China: An Integrated Approach Using Overall and Market-Specific Models," Sustainability, MDPI, vol. 17(12), pages 1-25, June.
    11. Ren, Xiaohang & Duan, Kun & Tao, Lizhu & Shi, Yukun & Yan, Cheng, 2022. "Carbon prices forecasting in quantiles," Energy Economics, Elsevier, vol. 108(C).
    12. Yaqi Wu & Chen Zhang & Po Yun & Dandan Zhu & Wei Cao & Zulfiqar Ali Wagan, 2021. "Time–frequency analysis of the interaction mechanism between European carbon and crude oil markets," Energy & Environment, , vol. 32(7), pages 1331-1357, November.
    13. Yi Yao & Lixin Tian & Guangxi Cao, 2022. "The Information Spillover among the Carbon Market, Energy Market, and Stock Market: A Case Study of China’s Pilot Carbon Markets," Sustainability, MDPI, vol. 14(8), pages 1-18, April.
    14. Di Sha & Xianyi Zeng & Arne Johannssen & Ruolin Wang & Kim Phuc Tran, 2026. "A Two‐Stage NLP‐Driven Framework for Interval‐Valued Carbon Price Prediction Using Sentiment Analysis and Error Correction," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 45(2), pages 806-818, March.
    15. Wei Sun & Ming Duan, 2019. "Analysis and Forecasting of the Carbon Price in China’s Regional Carbon Markets Based on Fast Ensemble Empirical Mode Decomposition, Phase Space Reconstruction, and an Improved Extreme Learning Machine," Energies, MDPI, vol. 12(2), pages 1-27, January.
    16. Reyer Gerlagh & Roweno J. R. K. Heijmans & Knut Einar Rosendahl, 2020. "COVID-19 Tests the Market Stability Reserve," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(4), pages 855-865, August.
    17. Quande Qin & Huangda He & Li Li & Ling-Yun He, 2020. "A Novel Decomposition-Ensemble Based Carbon Price Forecasting Model Integrated with Local Polynomial Prediction," Computational Economics, Springer;Society for Computational Economics, vol. 55(4), pages 1249-1273, April.
    18. Karpf, Andreas & Mandel, Antoine & Battiston, Stefano, 2018. "Price and network dynamics in the European carbon market," Journal of Economic Behavior & Organization, Elsevier, vol. 153(C), pages 103-122.
    19. Fang Zhang & Zhengjun Zhang, 2020. "The tail dependence of the carbon markets: The implication of portfolio management," PLOS ONE, Public Library of Science, vol. 15(8), pages 1-17, August.
    20. Cristiano Salvagnin & Aldo Glielmo & Maria Elena De Giuli & Antonietta Mira, 2024. "Investigating the price determinants of the European Emission Trading System: a non-parametric approach," Quantitative Finance, Taylor & Francis Journals, vol. 24(10), pages 1529-1544, October.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    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:eco:journ2:v:15:y:2025:i:6:id:21072. 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: Monica Sinhat (email available below). General contact details of provider: https://econjournals.com/index.php/ijeep .

    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.