Research On The Effectiveness Of China’s Carbon Emissions Market Auction Mechanism

Given the context of global warming,carbon trading has emerged as an efficacious trade measure in reducing greenhouse gas emissions,and has yielded significant results in developed nations,including Europe and the United States.The carbon trading market is expanding rapidly and has the potential to become the most significant energy market worldwide.Notably,China has established a unified carbon trading market,although it is yet to be fully developed,partly due to differences in market mechanisms among pilot regions.To solve this problem,this thesis constructs an auction mechanism applicable to China’s carbon market based on a game theory model,comparing the auction mechanisms in the pilot regions,and then verifies the model in practice and proposes improvements to further improve the market mechanism suitable for China’s carbon trading market.Based on the economic theory analysis,this study uses a game theory model to construct the auction mechanism of China’s carbon market from the perspective of the primary and secondary markets.At present,carbon emission rights trading is generally controlled and traded through the primary allocation market and secondary trading market.The two main segments of the carbon trading market include the primary allocation market,which involves the initial allocation of allowances,and the secondary trading market,which pertains to the trading of carbon emission rights.We design the primary market allocation mechanism based on the classical model of first-order sealed auction,which considers a multi-round first-order sealed auction model with the buyer paying commission.We also design the secondary market trading mechanism with the equilibrium price and volume of the primary market as the upper limit of the secondary market offer.We clarify the theoretical feasibility of the auction mechanism and put forward the hypothesis for the empirical analysis of this thesis,thus providing theoretical support for further research on the carbon trading market mechanism in China.Based on the current development of China’s carbon market,this study conducts a comparative analysis of the carbon return in six pilot regions and uses a GARCH model to conduct an empirical study.Among them,Hubei,Guangdong,Shanghai and Shenzhen have implemented the auction mechanism,while Beijing and Tianjin have not yet adopted the mechanism.The results show that the yield series of the pilot regions exhibit the characteristics of "spikes and thick tails" with different degrees of serial correlation,volatility aggregation and asymmetry.The pilot regions that introduced the auction mechanism performed better than the pilot regions that did not introduce the auction mechanism.These findings demonstrate the usefulness of introducing an auction mechanism in the carbon market,but also suggest that there are differences among the pilot regions and that the design and operation of the carbon market needs to be further explored and optimized.Drawing upon our investigation of model construction and result validation,we recommend the following measures for enhancing the carbon pilot trading mechanism and designing a national unified carbon trading market mechanism.Firstly,the government should implement a carbon quota auction mechanism to ensure equitable distribution of carbon quotas during the initial allocation process.Secondly,with regards to the market mechanism,we suggest fully leveraging the market’s role by allowing it to establish prices and carry out trades independently,thus promoting more effective carbon emission reduction and facilitating low-carbon economic development.Finally,in order to build a flexible market regulation,it is recommended to regulate the carbon price cap in the trading market and strengthen the auction mechanism in the two-tier market to ensure the liquidity and price stability of the market.