Could carbon emission control firms achieve an effective financing in the carbon market? A case study of China's emission trading scheme. (10th September 2021) - Li, Yin
Abstract: This paper proposes a new prediction method incorporating a set of measuring models applicable to the financing efficiency of China's carbon market to quantify such market's maturity, trading risk coefficient, and financing income. Our theoretical analysis indicates that the price of carbon emission quota essentially affects the financing efficiency of carbon market. While a robust safeguard measure to obtain a respectable income from carbon market financing is the long-term average quota price exceeding the initial quota price. Empirical findings derived from China's emissions trading scheme pilots reveal that these pilots can be divided into the growth-oriented market (i.e. Guangdong whose financing capacity is always significant), the balance-oriented market (i.e. Shanghai and Hubei whose quota pricing mechanisms and the financing level of carbon markets both maturely develop), and the risk-oriented market (i.e. Beijing whose quota price runs at a high-level with an intense financing income volatility). It is therefore achieved that carbon market's maturity level and quota price volatility are both robustly explicable for different financing effects among these pilots. Our key findings show that expanding the coverage of quota trading parties, stabilizing carbon price, and promoting carbon asset management help to improve the financing efficiency of carbon market. Highlights: The financing mechanism is analyzed with clarifying its main influence factors. A stochastic process is used to build a price simulation equation that meets the operation law of China's carbon market. An income model is built and thus evaluate market financing effect based on price expression and financing mechanism. The financing effect of China's 8 pilot markets is measured, and thus 3 kinds of development modes are proposed.