Empirically Analyzing The System Of Carbon Dioxide Emission Reduction Using The Method Of Option

With the rapid development of global economy, vast numbers of anthropogenic greenhouse gas (GHG) emission and related global warming issues threaten human-beings badly. Kyoto Protocol, an international contract inured in 2005, officially launched the reduction of carbon dioxide and other greenhouse gas in the world. As the biggest developing and greenhouse-gas emission country, China faces a double pressure of GHG reduction from domestic need and foreign demand. Under the background, the energy saving and emission reduction progress in China has become the common focus of international communities. Now, the 1st phase of the Kyoto Protocol is about to over, the arrangement of the international assignment of emission reduction will deeply affect the progress of Chinese carbon reduction.In the coming 2nd phase of Kyoto Protocol,2012 to 2017, it is greatly possible that China has to take the responsibility of emission reduction. If Chinese enterprises couldn’t get emission permission or trade emission reduction by using related market at that time, some of them might be confronted with a great sum of fine because of over-emission, moreover, the regular running of those corporations would become very tough. However, the market of carbon trade in China just budded for a very short while, the trade volume is small, and the variety of trade productions is poor as well. As a result, enterprises in China will look out on great risk during the proceeding of GHG reduction.Within this environment, it is crucial to study on how to introduce an effective market mechanism into all steps of carbon reduction in China. Currently, the study of GHG reduction focuses on the macro-economic level. Researches on the specific steps of emission reduction and the economic behavior of micro-individuals during the process are barely blank. In this paper, we will concentrate on the micro-individuals’optimization behavior of using the derivative of option in all specific steps.This paper proposes 3 parts for researching. Firstly, review and discuss the 4 main theories to prove the necessity and the rationality of the Chinese carbon emission right trade market. Secondly, theoretic analyze the method of option applying in all 3 steps, allocation, trade and evaluation, during the emission reduction process. Based on this, price option using in the specific step. Thirdly, empirically study on the method of option and related market mechanism introduced by it during the 3 steps. From what has been discussed above, we may draw the conclusions that:(1) Applying the method of option in allocation and trade steps will benefit not only the enterprise by reducing the systemic risk during the carbon emission reduction progress, but also the financial position of the enterprise. Meanwhile, it will benefit the re-allocation of resources in the macro level.(2) Introducing the method of real option to the evaluation step will help enterprises accurately estimate risks as well as potential profit in the uncertain environment and make reasonable decision.(3) After bringing in the market mechanism by using the method of option, enterprises can not only avoid risks, but also benefit from the potential value. As a result, corporations will be more actively participate in the progress of GHG emission reduction. It externally accelerates the energy saving and emission reduction progress as well as the transformation of economy growth pattern in China.According to the conclusions, several suggestions are made in this paper, they are, developing the derivatives of carbon emission right, improving the design of mechanism for carbon emission right trade, cultivating individuals participating in the carbon trade market, as well as establishing and meliorating the market for carbon emission right trade.Based on theoretic analysis and the foundation of former researches, this paper makes an empirical study on the methods of option using in 3 steps of carbon emission reduction. There are some contributions made by this paper: Firstly, applying the method of option in the allocation step, solving not only the problem of criterion, but also the problem of inactivity of participating individuals. Secondly, using the method of option in the trade step, reducing the risks confronted by the enterprises and increasing the possible revenue, and consequently improve the activity of the carbon trade market. Finally, introducing the real option to the evaluation, estimate the value of carbon emission reduction program, helping emprises make reasonable decision.