Dynamics of Regional Carbon Markets in China

36 Pages Posted: 9 Mar 2022

See all articles by Chenyan Lyu

Chenyan Lyu

Department of Economics, Copenhagen School of Energy Infrastructure, Copenhagen Business School

Date Written: November 3, 2021

Abstract

This paper describes the market architecture of five regional carbon markets in China and carries out an empirical analysis of carbon spot price co-integration from 2014 to 2019. The evidence of co-integration at rank one reveals that these regional ETS pilots are not mutually exclusive of each other. The empirical results in this study show, for the long run, each percentage-point increase in Shanghai and Hubei pilot will cause a decrease of 0.37% and 0.78%, respectively, in the Guangdong price while Beijing and Shenzhen ETS do not enter the long-run relation significantly. In the short term, results suggest that any deviation from the equilibrium co-integrating relationships is mainly caused by changes within the Guangdong ETS. Given the critical stage of development of the national ETS, greater attention should be paid to exploring the relevance of carbon prices across pilots and eventually connecting the regional pilots to the national ETS.

Keywords: Carbon markets, China’s regional emissions trading, emission allowances, market architecture, cointegration

JEL Classification: C32, E44, R11, Q43

Suggested Citation

Lyu, Chenyan, Dynamics of Regional Carbon Markets in China (November 3, 2021). Available at SSRN: https://ssrn.com/abstract=3996155 or http://dx.doi.org/10.2139/ssrn.3996155

Chenyan Lyu (Contact Author)

Department of Economics, Copenhagen School of Energy Infrastructure, Copenhagen Business School ( email )

Denmark
+45 53501305 (Phone)

HOME PAGE: http://chenyanlyu.com

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