Carbon market volatility analysis based on structural breaks: Evidence from EU-ETS and China

Yu, Haixu; Wang, He; Liang, Changhong; Liu, Zhaohua; Wang, Susheng

doi:10.3389/fenvs.2022.973855

Cited by 11 publications

(4 citation statements)

References 38 publications

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“…Though SBEA can provide opportunities for capital diversification, providing some buffering against future shocks (Tear et al 2021) The economic benefits of SBEA accrued at the national-level are recognised in the literature (Russell- Smith et al 2017;Lipsett-Moore et al 2018). At the local level, uncertainties over the procedural and distributive processes safeguarding the long-term supply of carbon benefits to indigenous and local people are compounded by price volatility in carbon markets in response to geopolitical risks and climate change (Sangha et al 2021;da Veiga and Nikolakis, 2022;Yu et al 2022). Additionally, subsidiary benefits including poverty alleviation, community resilience, biological diversity, and ecosystem restoration, have mostly been assumed in SBEA project feasibility assessments due to difficulties in quantifying the direct and indirect impacts of changes in fire management, along with a lack of metrics and data analysing potential benefits and trade-offs (Corey et al 2019;.…”

Section: Market Approachmentioning

confidence: 99%

Changing fire regimes in East and Southern Africa’s savanna-protected areas: opportunities and challenges for indigenous-led savanna burning emissions abatement schemes

Croker

Woods

Kountouris

2023

Preprint

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Late dry-season wildfires in Sub-Saharan Africa’s savanna-protected areas are intensifying, increasing carbon emissions, and threatening ecosystem functioning. Addressing these challenges requires active local community engagement and support for wildfire policy. Savanna burning emissions abatement schemes first implemented in Northern Australia have been proposed as a community-based fire management strategy for East and Southern Africa’s protected areas to deliver win-win-win climate, social, and biodiversity benefits. Here we review and critically examine the literature exploring the design and application of savanna burning emissions abatement schemes in this region, characterising their contextual and implementation challenges. We show that the application of Northern Australian savanna burning methodologies in East and Southern Africa tend to adopt centrally determined objectives and market-based approaches that prioritise carbon revenue generation at the national level. The exclusive prescription of early-dry season burns in African mesic savannas prone to woody thickening can compromise savanna burning objectives to mitigate late-dry season wildfires and their greenhouse gas emissions in the long-term, as well as present multiple biodiversity trade-offs in the absence of formal metrics monitoring species’ responses to changes in fire regime. These features restrict indigenous participation and leadership in fire management, creating uncertainties over the opportunities for local income generation through carbon trading. Findings suggest that future savanna burning applications will need to address asymmetries between formal institutions and local land governance systems, explicitly acknowledging colonial legacies in institutional arrangements across protected areas and hierarchies in agrarian politics that threaten processes of equitable decentralisation in natural resource management. We argue that the effective transfer of the Northern Australian fire management model is limited by a lack of long-term ecological and emissions data, and political and institutional barriers, and hindered by the region’s recent colonial history, population growth, and consequences of rapid climatic change. To provide a community-based strategy, savanna burning schemes need to establish context specific legal frameworks and implement Free, Prior, and Informed Consent to safeguard the roles and responsibilities of indigenous and local people and their distribution of carbon benefits.

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Section: Market Approachmentioning

confidence: 99%

Changing fire regimes in East and Southern Africa’s savanna-protected areas: opportunities and challenges for indigenous-led savanna burning emissions abatement schemes

Croker

Woods

Kountouris

2023

Preprint

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“…At present, China's carbon market is in a highly uncertain phase and characterized by substantial price fluctuations and relatively low prices [8,9]. Therefore, effectively assessing the volatility risks in the Chinese carbon market is essential [10,11]. Such an assessment can guide market regulators in formulating effective carbon market control policies to mitigate the occurrence of extreme risks, which in turn can help participating companies effectively manage their exposure to risks and prevent serious losses.…”

Section: Introductionmentioning

confidence: 99%

Research on Risk Measurement of China’s Carbon Trading Market

Duan,

He,

Yao

et al. 2023

Energies

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In today’s environmentally conscious world, carbon trading has emerged as a widely accepted economic instrument to mitigate the externalities resulting from deteriorating environmental problems. Consequently, the use of market-based mechanisms to address environmental issues has reached a global consensus. Many countries are implementing progressive steps by establishing carbon markets to promote low-carbon development and meet their carbon reduction targets. However, the inherent risks in carbon trading markets may hamper the formation of a reasonable carbon price signal, leading to inadequate stimulation of low-carbon technology investments and potential failure to achieve national emission reduction goals. Therefore, managing the risks associated with carbon trading markets is crucial. This study focuses on measuring the risk of China’s carbon market, with the primary aim of exploring carbon price fluctuation patterns and precisely measuring market risks. The risks associated with China’s carbon market are quantified and analyzed using the exponential generalized autoregressive conditional heteroskedasticity (EGARCH) model, extreme value theory (EVT), and the value at risk (VaR) method. Results show that (1) the effect of external shocks on each carbon market is asymmetrical, and positive shocks exert considerable leverage effects on carbon price fluctuations. (2) EVT can be used to effectively fit the risks in the carbon markets. The risks of each carbon market show different characteristics. The risk of Hubei and Guangdong carbon markets is relatively small, and the dynamic VaR is nearly ±0.2. (3) Compared with the performance of the Chinese carbon market, the performance of the European Union Emission Trading Scheme is more stable, and its dynamic VaR for most of the period is within ±0.1, which is considerably lower than the VaR of other Chinese carbon markets. This study also proposes suitable policy implications to ensure the healthy and sustainable development of China’s carbon market.

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“…The European carbon emissions trading (EU CET) market has emerged as the world's largest and most active market for trading carbon emissions, and it has been implemented in four stages. Currently, the EU CET is in the fourth stage of stable operation [3]. Consequently, numerous scholars choose the EU CET as their research focus to analyze the interaction between the carbon market and other markets at various stages of development [4,5].…”

Section: Introductionmentioning

confidence: 99%

Dynamic Spillovers between Carbon Price and Power Sector Returns in China: A Network-Based Analysis before and after Launching National Carbon Emissions Trading Market

et al. 2023

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The launch of the national carbon emissions trading (CET) market has resulted in a closer relationship between China’s CET market and its electricity market, making it easy for risks to transfer between markets. This paper utilizes data from China’s CET market and electric power companies between 2017 and 2023 to construct the spillover index model of Diebold and Yilmaz, the frequency-domain spillover approach developed by Barun’ik and Křehl’ik, and a minimum spanning tree model. The comparison is made before and after the launch of the national CET market. Subsequently, this paper examines the market spillover effects, as well as the static and dynamic properties of network structures, considering both the time domain and frequency-domain perspectives. The research findings suggest the following: (1) There is a strong risk spillover effect between China’s CET market and the stock prices of electric power companies; (2) There is asymmetry in the paired spillover effects between carbon trading pilot markets and the national CET market, and differences exist in the impact of risk spillovers from power companies between the two; (3) The results of the MST model indicate that the risk contagion efficiency is higher in the regional CET pilot stage compared to the national CET market launch stage, with significant changes occurring in key nodes before and after the launch of the national CET market; (4) Both the dynamic spillover index and the standardized tree length results demonstrate that crisis events can worsen the risk contagion between markets. Besides offering a theoretical foundation and empirical evidence for the development of China’s CET and electricity markets, the findings of this paper can provide recommendations for financial market participants as well.

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Carbon market volatility analysis based on structural breaks: Evidence from EU-ETS and China

Cited by 11 publications

References 38 publications

Changing fire regimes in East and Southern Africa’s savanna-protected areas: opportunities and challenges for indigenous-led savanna burning emissions abatement schemes

Changing fire regimes in East and Southern Africa’s savanna-protected areas: opportunities and challenges for indigenous-led savanna burning emissions abatement schemes

Research on Risk Measurement of China’s Carbon Trading Market

Dynamic Spillovers between Carbon Price and Power Sector Returns in China: A Network-Based Analysis before and after Launching National Carbon Emissions Trading Market

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