Research On Transmission Channel Of Policy To Price In Chinese Emission Trading Scheme

In 21 st Century,climate change is the serious and complex challenge for human beings.Up to Jan.1st,2016,the average global temperature has up 1 centigrade compared against the period before the industry revolution,which bring enormous economic lost worldwide through extreme weather and climate.If no action has been taken,greenhouse gases(GHG)emission which is treated the origins of climate change would continuous increase the temperature with a speed of 0.1 to 0.25 centigrade per 10 years;and that would be a great threaten for humans due to polar ice melting and sea level rise.To inhibit the excessive GHG emission,building emission trading scheme has reached a worldwide conscious.In this market,the total social emission can be gradually reduced since the cap-and-trade mechanism improves the reduction consciousness of individuals and firms.To be the second economic body and the largest emitter,China also established its unified carbon market in Dec.19 th,2017.However,an unsound trading system will easily bring the huge price volatility and damage the operation of market at the initial period.Accordingly,improving the construction level of policy system is apparently important in its trading process.Based on Chinese Emission Trading Scheme,this paper explores the transmission channel of market policy to carbon price,and discoveries the way policies affect carbon prices as well as pointed out what kind of policy transmission mode the government can use to reduce the risk of carbon price under the market mechanism.First,on the base of combing up current existed construction mechanism of the carbon market,we conclude that policy is the fundamental influence factor of carbon price.Based on this,the price trend between the carbon emission similarity region and the carbon pilot market is compared,showing that the emission base is not the main impact reason for the carbon price.Further analyzing the relationship between the market design mechanism and the pilot market price,we conclude that the policy is the source of the price fluctuation.In addition,different from the carbon market in developed countries,China’s carbon market is more dependent on strong policies.This conclusion provides a strong theoretical guarantee for the exploration of the impact of policy on price in China’s carbon market.Second,to explore the policy transmission channel,a stochastic differential equation with jump is applied to simulate the price influence shocked by policy publication,and the historical data of policy and price in Shanghai Environment and Energy Exchange is collected as research subject.The simulation result indicates that the policy affect the price mainly by adjusting the allowance’s supply and demand,representing a long period mean value transmission.And compared to the market security policy,the policy that directly affects the market fundamentals is more likely to lead to the price fluctuation.This result shows that unlike general commodity market that policy publication brings investment panic to cause the price volatility,China’s carbon market policy mainly transmits to carbon price at the level of supply and demand.Accordingly,the government should pay more attention to the long-term influence of the policy on the carbon market.Moreover,the transmission path of demand stimulus policy to carbon price is explored.In order to reduce the problem of the no cost profit from the free quotas,we quantify firms’ final profit that is gained from carbon trading based on different free quota policies to measure the actual quota demand in carbon market.The theoretical results show that the volume of free quotas restricts the conduction degree of demand stimulus policy,and the price transmission effect excessively decreases with the increase of free quotas.Applying this regular to the Shanghai carbon pilot market,the result shows that demand stimulus policy can explain most of the price movements;and the Shanghai pilot market is in line with the theoretical price trend of excessive free quota supply.Therefore,we believe that there is a widespread problem of excessive free quota supply in China’s carbon market,which is not conducive to the long-term development of the market.Last,in view of the problem of excessive carbon quota,by taking full reference to the existing quota supply adjustment schemes,the supply adjustment plan of China’s carbon market is proposed with the specific algorithm and transmission path.In view of the difficult measurement of the real market carbon quota demand,the hidden Markov model is introduced to simulate the quota demand state,and real market environment is obtained by constantly updating the transition state matrix.Experimental results show that the fitting effect of developed model is accurate with a good prediction function as well,which provides a powerful tool for the price risk prevention in China’s carbon market.This paper has innovatively identified the main transmission path of market policy to carbon price.The new results of the transmission relationship between different market policies and market prices are obtained;a new method of judging the effectiveness of the carbon market demand stimulus is pointed out;as well as a new scheme for the adjustment of dynamic quota supply is put forward.This paper explores the transmission channel of market policy to carbon price,which has important theoretical and practical significance to propose a reasonable policy implementation for the future carbon market development in China.