Carbon trading
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The Role and Impact of Carbon Trading: Insights from Recent Research
Introduction to Carbon Trading
Carbon trading is a market-based mechanism aimed at reducing greenhouse gas emissions by allowing countries or companies to buy and sell emission allowances. This system incentivizes the reduction of carbon emissions by putting a price on them, thus encouraging more sustainable practices.
Economic and Environmental Impact of Carbon Trading in China
Economic Output and Emissions Reduction
Research indicates that carbon trading can significantly boost economic output while reducing carbon emissions in China's industrial sectors. By comparing different carbon trading schemes—no trading (NT), sectoral trading (ST), and sectoral-and-temporal trading (STT)—it was found that the ST and STT schemes could potentially increase industrial value-added by 55.17% and 73.76%, respectively. Additionally, these schemes could reduce carbon dioxide emissions by 58.30% and 65.25% over the study period from 2006 to 20151.
Policy Effectiveness and Carbon Neutrality
The implementation of carbon trading schemes has been shown to improve energy utilization and carbon performance significantly. Empirical studies using China's pilot schemes as a case study have demonstrated that carbon trading can effectively promote energy conservation and emission reduction, making it a vital tool for achieving carbon neutrality by 20605.
Comparative Analysis: Carbon Tax vs. Carbon Trading
Emission Reduction Efficiency
A comparative analysis between carbon tax and carbon trading mechanisms reveals that while both strategies are effective in reducing emissions, the carbon tax has a higher relative emission reduction efficiency over time. This is due to the various invisible costs associated with establishing a new carbon trading market. Therefore, it is recommended that China could consider directly levying a carbon tax on energy enterprises to achieve more efficient emission reductions3.
Global Trends and Future Developments in Carbon Trading
Expansion and Integration of Trading Schemes
The future of carbon trading points towards the geographical, temporal, and sectoral expansion of emissions trading schemes. However, this expansion faces significant technical and non-technical challenges, including the need for harmonization of different trading systems, clear regulatory signals, and stable political and economic environments2.
Industry Involvement and Market Dynamics
The carbon trading market is expected to grow substantially, with the European Union's scheme projected to trade up to $1 billion in allowances annually by 2010. Industry involvement is crucial for defining and advancing carbon trading to protect their interests, especially for producers and users of greenhouse gases other than carbon dioxide4.
Evolution and Risk Management in Carbon Trading
Evolutionary Path and Research Directions
The literature on carbon trading has evolved significantly, focusing on the impact of carbon prices and the development of coordinated strategies. Future research is expected to delve deeper into these areas, providing valuable insights for the promotion and improvement of carbon trading schemes6.
Risk Measurement and Market Stability
Managing the risks associated with carbon trading markets is essential for their sustainable development. Studies using models like EGARCH and EVT have shown that external shocks have asymmetrical effects on carbon price fluctuations. Effective risk management strategies are necessary to ensure the stability and reliability of carbon markets, particularly in China10.
Conclusion
Carbon trading is a powerful tool for reducing greenhouse gas emissions and promoting sustainable economic growth. While it presents certain challenges, particularly in terms of market integration and risk management, its potential benefits make it a critical component of global efforts to combat climate change. Continued research and policy development will be essential to maximize the effectiveness of carbon trading schemes worldwide.
Sources and full results
Most relevant research papers on this topic
The impact of carbon trading on economic output and carbon emissions reduction in China’s industrial sectors
Carbon trading in China's industrial sectors can boost economic output and reduce carbon dioxide emissions, potentially increasing value-added by 55.17% and 73.76% compared to no-trading schemes.
Highly CitedCarbon trading: Current schemes and future developments
Carbon trading shows potential for expansion, but technical and non-technical obstacles must be overcome, and the market faces uncertainty due to global economic turmoil and policy shifts.
Highly CitedRethinking the choice of carbon tax and carbon trading in China
Carbon tax is more effective than carbon trading in China, with higher efficiency and reduced negative effects on energy industry output.
Highly CitedCarbon trading: time for industry involvement.
Industry should participate in carbon trading now to advance and defend their interests, particularly among producers and users of greenhouse gases other than carbon dioxide.
Towards carbon neutrality by implementing carbon emissions trading scheme: Policy evaluation in China
Carbon trading significantly improves carbon/energy-carbon performance, promoting energy conservation and emission reduction, making it an effective policy tool for achieving carbon neutrality.
Highly CitedA review of carbon trading based on an evolutionary perspective
Carbon trading research has evolved from mathematics to coordinated development, with three major clusters identified: carbon prices, China's carbon trading, and carbon market and supply chain.
Literature ReviewCarbon trading volume and price forecasting in China using multiple machine learning models
CEEMDAN-GWO-KNEA and CEEMDAN-RBFNN are the most accurate models for predicting carbon prices and trading volume in China, with high stability in most datasets.
Highly CitedCarbon trading in a socialist market economy: Can China make a difference?
China's pilot emission trading schemes show promise, but their viability is uncertain due to the absence of a liberal political-economic system.
Highly CitedCarbon emissions trading in China: the evolution from pilots to a nationwide scheme
China's carbon trading pilots show that education, strict compliance rules, and uniform standards are crucial for enabling active participation and smoothing the transition to a national emissions trading scheme.
Highly Cited