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Pricing Carbon Emissions In China

Author

Listed:
  • CHIA-LIN CHANG

    (Department of Applied Economics, Department of Finance, National Chung Hsing University, Taiwan, R. O. C.)

  • TE-KE MAI

    (Department of Economics, National Tsing Hua University, Taiwan, R. O. C.)

  • MICHAEL MCALEER

    (Department of Finance, Asia University, Taiwan, R. O. C.4Discipline of Business Analytics, University of Sydney Business School, Australia5Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam, The Netherlands6Department of Economic Analysis and ICAE, Complutense University of Madrid, Spain7Institute of Advanced Sciences, Yokohama National University, Japan)

Abstract

The review paper provides a strategy for determining carbon emissions pricing in China to guide how carbon emissions might be mitigated to reduce fossil fuel pollution. China has promoted the development of clean energy, including hydroelectric power, wind power, and solar energy generation. In order to involve companies in carbon emissions control, regional and provincial carbon markets have been established since 2013. As China’s carbon market is organized domestically, and not necessarily using market principles, there has been little research on China’s carbon price and volatility. This paper provides an introduction to China’s regional and provincial carbon markets, proposes how to establish a national market for pricing carbon emissions, discusses how and when these markets might be established, how they might perform, and the subsequent prices for China’s regional and national carbon markets. Power generation in manufacturing consumes more than other industries, with more than 40% of total coal consumption. Apart from manufacturing, the northern China heating system relies on fossil fuels, mainly coal, which causes serious pollution. In order to understand the regional markets well, it is necessary to analyze the energy structure in these regions. Coal is the primary energy source in China, so that provinces that rely heavily on coal receive a greater number of carbon emissions permits. In order to establish a national carbon market for China, a detailed analysis of eight important regional markets is presented. The four largest energy markets, namely, Guangdong, Shanghai, Shenzhen, and Hubei, traded around 82% of the total volume and 85% of the total value of the seven markets in 2017, as the industry structure of the western area is different from that of the east. The China National Development and Reform Commission has proposed a national carbon market, which can attract investors and companies to participate in carbon emissions trading.

Suggested Citation

  • Chia-Lin Chang & Te-Ke Mai & Michael Mcaleer, 2018. "Pricing Carbon Emissions In China," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 13(03), pages 1-37, September.
  • Handle: RePEc:wsi:afexxx:v:13:y:2018:i:03:n:s2010495218500148
    DOI: 10.1142/S2010495218500148
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    More about this item

    Keywords

    Pricing Chinese carbon emissions; national pricing policy; energy; volatility; energy finance; provincial decisions;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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