China's Carbon Trading Market Price Research

It already became a fundamental consensus in 20th century that low-carbon economy should be developed and the emission of greenhouse gas should be reduced.In Post-Kyoto Era,it is still an important issue confronted by every country.In the early period of 21st century,the establishment of several regional carbon trading markets such as EU ETS marked that trading carbon emission became the main approach for the developed countries to reduce the cost of emission reduction.Practice shows that the market-based environmental policy tools have an edge over traditional restraint through command-and-control.As the country with the highest carbon emission,China faces tremendous pressure to reduce emission.How to achieve the goal of emission reduction with low cost is a problem to be solved by Chinese government.Against a background that our country has converted the way to control the emission of greenhouse gas from relying solely on administrative means to take market force into play,seven carbon trading pilots(markets)including Shenzhen were launched in June 2016.In the emission market predominated by exogenous policy,price is the core of market mechanism,whether as a result of market competition or as a signal for the allocation of carbon emission permits outside.In the logic flow of Reasonable pricing benchmark--Driving factors of carbon price fluctuation--Efficiency of carbon market--Price discovery mechanism,this thesis studies carbon trading market of China.This thesis aims to provide theoretical and empirical basis for the stable development of the market.For the carbon trading price,this paper reviews carbon trading related theories,and summarizes the experience in price formation of foreign carbon quota.Then we draw a conclusion that the allocation mechanism is the key factor in allocation pricing.This part is based on marginal cost theory,and build a parametric quadratic directional output distance function to approach shadow price of carbon dioxide under different inputs and outputs.The inputs includes labor,capital and energy.To go a step further,we divide energy input into fossil and non-fossil part,the fossil part includes oil,coal and gas.Meanwhile,we also consider there might be a difference between the shadow price of second industry and gross output.Combining different industry structures,we choose secondary industry and gross output as different input variables to estimate the parallel shadow price.The estimation of this four scenarios of input and output shows that the second industrial carbon dioxide corresponding shadow price is higher than the total output corresponding shadow price,shadow price of carbon dioxide considering the energy structure is higher than that of non-considering.The average shadow price of different provinces varies from 3.94 Yuan/Ton to 805.24 Yuan/Ton,due to different energy input structure,secondary industry proportion.In this paper,to make a step further,the deviation between shadow price and transaction price will be analyzed,and the distribution mechanisms,which are the core factors affecting the initial price,will also be discussed.With regard to the operating mechanism of carbon trading prices,this thesis is based on Equilibrium Price Theory and conducts a series of empirical researches mainly on the carbon trading price of China on the basis of the experiences of EU ETS towards its driving factors of price,operating characteristics and experience of operation control,emphasis on the impact of carbon trading prices in China This thesis chooses five variables that reflect macro-economy,energy price and weather factors as the potential influence factors and uses three testing methods,namely Static Panel Model,PVAR Model,and Bai-Perron Test to reveal the influence factors and rules of carbon trading prices from multiple dimensions.According to the result of the research,macro-economy and energy price have a significant impact on carbon prices while weather factors can't greatly influence carbon prices;carbon prices are driven by several complicated factors.Besides,some factors which are not concluded in the model still deserve to be exploited and the linkage mechanism for carbon trading prices has not formed yet.The time of abrupt change in carbon prices and the compliance period coincide in six carbon trading pilot cities except Hubei.As is shown by the empirical results,the carbon prices don't react to their influence factors sufficiently.The linkage between carbon prices and the factors of real economy is not strong,which means that the fluctuation of carbon prices doesn't fully reflect the internal economy dynamic and the change in the cost of carbon emission imposed by the policy control intention.In order to promote the construction of carbon trading market in China,the government should not only conduct macro and micro governance of the market operation environment to promote the enforcement of the pricing mechanism of carbon trading market but also pay close attention to the possible abrupt price change in the carbon trading process.Thus,a carbon price stabilization mechanism which is consistent with China's national condition from four aspects,including constructing a flexible offsetting mechanism,allowing quota and inter-annual storage,setting aside a certain percentage of quota for the adjustment of market price,and transiting from fixed safety valve to floating safety valve,should be set up.As for the pricing efficiency of the carbon trading market,this thesis is based on the Efficient Market Hypothesis.Firstly,the thesis distinguishes the definitions of pricing efficiency and that of pricing efficiency with the aid of related documents.Then,seven pilot projects are studied and the characteristic of Thin Trading which exists significantly in those pilot projects is taken into consideration.The author also uses several variance ratio tests to study the price information efficiency of seven pilot cities.After comparing the result which takes Thin Market into consideration and the result which does not,the author realizes that only three pilot cities--Shanghai,Guangdong,and Tianjin have reached weak efficiency.And the root reasons for the differences in effectiveness are the differences in the sum of quota and the number of covered enterprises,the output proportion covered by carbon trading markets,the mode of quota allocation,the perfection degree of trading rules,and the range of market participants.On the basis of the experience of EU ETS,the thesis states that some steps should be taken to improve the pricing efficiency;Firstly,enhance the information disclosure.Secondly,improve the ability of those enterprises which are required to control their carbon emission to manage their carbon assets and cultivate rational investors.Thirdly,the market capacity shall be expanded and extend the coverage ratios of those enterprises which are required to control their emission.As for the price discovery of the carbon trading market,this thesis is based on the futures pricing theory and option pricing theory for pirce discovery.Firstly,the contributions for price discovery of EU ETS is studied.The price discovery function of the futures pricing theory and option pricing theory of EU ETS keeps increasing.As for the developing track of the derivatives market,OTC derivative market can lay the operation foundation for floor trading of futures and options.EUA options and EUA futures are launched earlier than CER options and CER futures and also have a higher volume.Generally speaking,the volume of futures and options are much higher than that of spot goods,which means that options and futures play an important role in the development of carbon trading market.So the author puts forward a developing path of China's carbon futures market and carbon options market.It's also recommended that the carbon futures market and carbon options market should be set up as soon as a national carbon trading market is founded.As for the trading varieties,derivatives based on quota mechanism should be introduced firstly,and carbon futures should be launched earlier than carbon options.This thesis makes a detailed design for CEA futures and CEA options and raises several examples of promoting carbon futures and carbon options in future.At last,there is no doubt that the derivatives market needs more diversified participants.So the author holds the opinion that the participants group should be expanded.At last,this thesis makes a summary of the research on the prices and efficiency of China' s carbon trading market.Based on the fact that the main problem is that the market mechanism doesn't function well and efficiently,the author proposes that the government should govern the market from five aspects--distribution system,mechanism of supervision and inspection,information disclosure mechanism,price stabilization mechanism,and market cultivation,and provides actionable policy recommendations further.