Study On Energy Spread, Cost Of Carbon Emission And Decisions Of Enterprise Emission Abatement

During the last decade we have been witness to a significant increase in theattention given by both policy makers and regulators to market-based environmentalpolicy instruments. Carbon emissions become a commodity that can be traded on themarket due to the legally regulation “Kyoto Protocol”. The world’s major economieshave established their own carbon trading system, trying to stay ahead in the comingcarbon finance system. With a growing numbers of financial institution participated andthe deepen of financial innovation, more derivatives based on carbon emission quotabecome available, which incentives the liquidity of the carbon emission market, andprovides an alternative method for the corporations to achieve the abatement as well.So far by reviewing the current international carbon emissions market situation,acts issued by many countries after2012added a huge cost for the enterprises to jointhe carbon trading system. The price of carbon emission is affected by many uncertainvariables such as climate, energy prices and macroeconomic environment. It isillustrated that the drastic volatility of the price of carbon emission after the crisis in2008, and the uncertainty will be more complex because of the transition between stageI and II of commitment. Developing a reasonable price range of the carbon emission notonly plays a significant role in establishing our own carbon market, but incentives thecurrent international market as well. Therefore, it is of great value that finding theimpact factors of carbon emission price and developing a reasonable price range.In this paper, we assume that enterprises take emission abatement action by usingboth clean energy and non-clean energy, and consequently define energy spread as theswitching cost by using clean energy and non-clean energy. In a perfect market, energyspread is supposed to be zero given the absence of the trading of the carbon emissionallowance. But the differences in the heating efficiency and carbon emission betweenthese two energy lead to an adding cost in carbon abatement. Then we use the data ofEUA future price and other energy prices such as coal and gas, and establish aARDL-ECM model using econometrics quantitative method and analyze the spillovereffect between energy spread and carbon emission prices. The results illustrate that theenergy spread has a close correlation with EUA future price. After getting verificationfrom EU market, we deduct the optimal strategy——the usage of clean and non-cleanenergy of a company using dynamic optimal control method, given the assumption that the absence of carbon trading and the price of energy market and output of theenterprise are all exogenous. We find the minimum cost of emission abatement of theenterprise, thus we can give a guiding price based on the marginal cost pricing principle.In the end, we analyze from the dimensions of carbon emission distribution, pricestabilization mechanism, and measurement of carbon emission. We point out some keyfactors that need to be taken into consideration and give practical suggestion on forminga competitive carbon financial market.