Comparative Analysis Of Carbon Price Volatility Between China And Europe Based On The MS-GARCH Model

The extensive economic development of human beings has produced many greenhouse gases.The following global warming,environmental degradation,and increase of industrial production cost have seriously affected the normal economic activities.According to the world bank development report,global CO₂ emissions increased by more than 50 percent from the late 1990s to the early 20th century.Between 2014 and 2017,this number has maintained a steady growth trend.The United Nations Framework Convention on Climate Change and the Kyoto Protocol have made global joint emission reduction a binding legal obligation and make carbon emission rights a tradable carbon financial asset.Market-based instruments,such as environmental/carbon taxes and carbon trading,are widely recognized as indispensable policy instruments for improving energy efficiency and addressing climate issues.The global carbon market has grown rapidly since the emergence of the EU ETS in2005.Because of the huge demand and consumption of energy in China,China has a great potential for emission reduction and plays an important role in global joint emission reduction.With the increase of carbon emission reduction task,China began to explore the establishment of a national carbon trading market,which aims to promote energy conservation and emission reduction and the development of low-carbon economy.Shenzhen carbon trading pilot was established on June 18,2013.It is the first regional carbon trading pilot in China with the most comprehensive carbon trading data and reasonable design in China.China's carbon trading market has developed rapidly in recent years,and the emerging carbon trading market has a great development prospects.Based on the GARCH models and the MS-GARCH model,this paper makes a comparative analysis of the volatility characteristics of the two markets,in order to explore the short-term dynamic and switching behavior of carbon spot prices in Shenzhen ETS and EUA futures prices in EU ETS,so as to provide effective price signals for risk management and investment decision-making of participants in carbon trading market.The empirical results show that:?1?there are volatility agglomeration and asymmetry in both markets,but the volatility of carbon price in Shenzhen plot is larger,and the response of carbon price to the external information is more rapid in EU ETS,and price volatility agglomeration is much more significant;?2?there are obvious structural mutations characteristics in both markets,but the structural mutations in EU ETS are often related to the latest policies and climate change.However,Shenzhen carbon trading market is less effective,and the structural mutations are often associated with the imperfect system and government intervention;?3?the results of MS-GARCH model in both markets can effectively reduce the volatility persistence and capture the nonlinear characteristics.The results show that China's carbon trading market is still fragile,and it is necessary to accelerate the establishment of a national unified carbon trading market which is centered on carbon prices,by improving the carbon pricing mechanism,carbon allocation and related legal systems,in order to encourage enterprises to upgrade emission reduction technology and promote the development of low-carbon economy.