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Digital Twins and Network Resilience in the EU ETS: Analysing Structural Shifts in Carbon Trading

Author

Listed:
  • Cláudia R. R. Eirado

    (Department of Economics, University of Brasília (UnB), Brasília 70910-900, Brazil
    These authors contributed equally to this work.)

  • Douglas Silveira

    (Department of Economics, Federal University of Juiz de Fora (UFJF), Juiz de Fora 36036-900, Brazil
    Territorial and Sectoral Analysis Laboratory (LATES), Juiz de Fora 36036-900, Brazil
    These authors contributed equally to this work.)

  • Daniel O. Cajueiro

    (Department of Economics, University of Brasília (UnB), Brasília 70910-900, Brazil
    National Institute of Science and Technology for Complex Systems (INCT-SC), Rio de Janeiro 22290-180, Brazil
    Machine Learning Laboratory in Finance and Organizations (LAMFO), Brasília 70910-900, Brazil
    These authors contributed equally to this work.)

Abstract

The European Union Emissions Trading System (EU ETS) and its underlying market structure play a central role in the EU’s climate policy. This study analyses how the network of trading relationships within the EU ETS has evolved from a hub-dominated architecture to one marked by structural change and the emergence of new trading dynamics. Using transaction data from Phases I–IV, we apply complex network analysis to assess changes in connectivity, centrality, and community structure. We then construct a Digital Twin of the EU ETS, integrating graph neural networks and logistic regression models to simulate the entry of new participants and predict future trading links. The results indicate shifts in network composition and connectivity, especially in Phase IV, where regulatory innovations and institutional mechanisms appear to play a key role. While our analysis focuses on structural dynamics, these patterns may have broader implications for market performance and policy effectiveness. These findings underscore the importance of monitoring the evolving trading network alongside price signals to support a resilient, efficient, and environmentally credible carbon market.

Suggested Citation

  • Cláudia R. R. Eirado & Douglas Silveira & Daniel O. Cajueiro, 2025. "Digital Twins and Network Resilience in the EU ETS: Analysing Structural Shifts in Carbon Trading," Sustainability, MDPI, vol. 17(15), pages 1-31, July.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:15:p:6924-:d:1713470
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    References listed on IDEAS

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