Factors Affecting Carbon Emission Trading Price: Evidence from China

ABSTRACT

Since the Chinese national carbon trading market was launched in 2017, the carbon trading price has become an important research topic. This study constructs the ‘China carbon trading price index’, and then a SVAR model with the China carbon trading price index, the EU carbon trading price index, an industrial index, the China Securities Index energy index (CSI), an air quality index (AQI) and the HS300 to study carbon trading prices in China. The result shows that the EU carbon trading price and AQI have a direct effect on China carbon trading price. Meanwhile, the CSI energy index, industrial index and HS300 have an indirect effect on the carbon trading price, and the effect is slightly positive. In addition, the volatility of China’s carbon trading price is mainly internally driven, while the volatility of the other economic variables examined is mostly driven by the EU carbon trading price index and the industrial index.

KEY WORDS:

• China carbon trading price index
• Chinese carbon trading pilot market
• influencing factors
• structural VAR

JEL:

• O13

Supplementary Material

Supplemental data for this article can be accessed here

Notes

1. As of December 31, 2018, the cumulative volume of the seven carbon emission trading pilots in China (Shenzhen, Shanghai, Beijing, Guangdong, Tianjin, Hubei, Chongqing) had exceeded 53.477 million tons, and the cumulative turnover had exceeded 10.44 billion RMB, making it the second largest market in the world carbon market.

2. The China carbon index, developed by the Beijing Green Finance Association, is an indicator that comprehensively reflects the transaction prices and liquidity of various pilot carbon markets in China, including the ‘China carbon market index’ and the ‘medium carbon liquidity index’. Starting with the two dimensions of price and liquidity, the total carbon emission quotas, average transaction price and transaction volume of the carbon trading pilots in China are the main parameters, reflecting the overall operation of China’s carbon market and providing investors with a set of tools to analyze China’s carbon market.

3. Other methods include the PP test, DFGLS test, KPSS test, and ERS test.

4. Here, Cholesky decomposition is used.

Additional information

Funding

This work was supported by the Study on the development path of China’s carbon trading system after the Paris Climate Agreement going into effect [17BJY062,Chinese National Social Sciences Program Fund];Study on the Supply and Demand Boundary of Weather Index Insurance and Income Support Policy [71903121,the National Natural Science Foundation of China].