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The shipping sector has been incorporated into the European Union Emissions Trading System (EU-ETS). Undoubtedly, the carbon emission factor is a critical consideration when determining carbon allowances in the EU-ETS, known as EU Allowances (EUAs). In this study, an all-performance carbon emission test was conducted on a marine LNG engine to investigate the differences between the actual carbon emission factor and the reference value. It was observed that the actual carbon emission factor is smaller than the reference value. The test results indicate a discrepancy of approximately 3%, resulting in potential savings of 10,000 to 20,000 dollars in EUAs for a ship consuming 2000 tonnes of LNG fuel annually. Furthermore, variations in the carbon emission factor were observed under different engine operational conditions, fluctuating by around 2% at constant revolutions per minute (RPM). This suggests the need for more suitable emission testing methods to accurately reflect actual emissions and better achieve emission control goals. • Differences of carbon emission factor between bench test and the reference value was analysed. • Cost reduction of EUAs based on the differences was analysed. • Carbon emission characteristics under all performance conditions were explored. • Carbon emission factor varies with operational conditions of the engines. [ABSTRACT FROM AUTHOR]

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The primary objective of the European Union has been to bring cohesion among its member states and their respective regions. This has led the European Union to introduce structural funds of various types. Since the last decade, these structural funds have also been used to combat climate change via human capital and green investments. Our main objective is to analyse how these structural funds have impacted EU regional economic growth patterns. We use a novel heterogeneous panel estimator of C-Lasso type, conclude with two groups and find the definitive impact of structural funds towards regional economic growth. We then check the impact of the regional European emission trading system and European pollution registry system on economic growth using a panel threshold regression which uses a latent group structure. In doing so, we find two groups in our sample and the presence of threshold levels both with and without latent groups. [ABSTRACT FROM AUTHOR]

Emission trading is an efficient measure to combat climate change, which is one of the biggest threats to the international community and human health. The shipping industry has previously been considered an energy-saving industry but the growth rate of its emissions far exceeds that of other industries. On 10 May 2023, the EU enacted Regulation (EU) 2023/957, which officially included the shipping industry in the EU-ETS. Therefore, this may lead to investor-state disputes regarding emission trading in the marine industry due to the conflicts between the obligation to combat climate change and the obligation to protect investments of the host states. This has resulted in the breaching of International Investment Agreements. In this context, this study aimed to propose practical recommendations for global marine market practitioners to avoid the potential risks of disputes by reflecting on the existing practice regarding climate changerelated investor-state dispute resolutions and identifying the trends and problems of the current dispute resolution mechanism. These included inconsistency in the review standard, inconsistency in the review scope, and broad interpretation by the tribunal. Finally, this study proposed that by setting public purpose and exception clauses in the preambles of the International Investment Agreements and incorporating the specific obligations of the foreign investors and the regulatory power of the hosting states in the drafting stage, the potential risks for disputes regarding the new EU directive in the global marine industry could be effectively reduced. [ABSTRACT FROM AUTHOR]

In 2013, the European Union's Emission Trading Scheme (EU‐ETS) entered Phase III. The majority of emission permits in Phase III are auctioned instead of being allocated for free as in Phases I and II. Using a difference‐in‐differences method, we show that this change has led to an increase in the financial distress risk of the EU‐ETS‐regulated firms when compared to unregulated firms, suggesting that the EU‐ETS imposes a significant financial burden on regulated firms. This result is robust to an array of validation tests, alleviating concerns that it is driven by unobserved factors. In additional analyses we show that the increase in distress risk of regulated firms during Phase III can be explained by, (i) an additional climate regulation cost to purchase pollution permits and (ii) a low average environmental score that possibly (via high sustainability risk) lowers investors expectations regarding firms' performance. Our findings also show that the distress risk increase is higher for regulated firms operating within countries with lower control of corruption, government effectiveness, political stability, regulatory quality, rule of law, and voice accountability before the EU‐ETS implementation. [ABSTRACT FROM AUTHOR]

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This paper firstly puts forward to employ investor attention obtained from Google trends to explain and forecast carbon futures return in the European Union-Emission Trading Scheme (EU-ETS). Our empirical results show that investor attention is a granger cause to changes in carbon return. Furthermore, investor attention generates both linear and non-linear effects on carbon return. The results demonstrate that investor attention shows excellent explanatory power on carbon return. Moreover, we conduct several out-of-sample forecasts to explore the predictive power of investor attention. The results indicate that incorporating investor attention indeed improve the accuracy of out-of-sample forecasts both in short and long horizons and can generate significant economic values. All results demonstrate that investor attention is a non-negligible pricing factor in carbon market. [ABSTRACT FROM AUTHOR]

In addressing climate change, the shipping industry, which is regarded as one sector that cannot be ignored in controlling greenhouse gas emissions, has become a key area of concern for the international community to achieve emissions reduction targets. The International Maritime Organization—the body that regulates international shipping—as well as the European Union and other international entities have adopted a series of emissions reduction policies, beginning a new era of shipping emissions reduction. In view of the urgency and complexity of this issue, the future policy direction of shipping emissions reduction and whether or not existing policies can achieve the emissions reduction targets have become the focus of attention in the global shipping industry. In addition, China’s dual identity as a shipping magnate and a developing country plays a crucial role in the development of shipping emissions reduction trends, and reducing shipping emissions is necessary for China to achieve the “double carbon” commitment. In view of the above, this study endeavours to compare the current major shipping emission reduction policies from the perspective of international law and the perspective of macro policies, and analyze the future direction of international shipping emissions reduction policy. At the same time, the study identify China as one of the key countries to influence future policy making and proposes the position and path for China's participation in international shipping emissions reduction, which provided valuable contributions for China to participate in accelerating energy transformation, exploring participation in the carbon emission market, and promoting international unified shipping policy.

In recent years, carbon market transactions have become more active. The number of countries participating in carbon market regulation is increasing, and the carbon market’s overall turnover continues to grow. It is important to study the features of carbon allowance price volatility for the stable development of the carbon market. This paper constructs a modified ICSS-GARCH model to analyze the volatility of carbon price returns and the dynamic characteristics of price fluctuations in the emissions trading system of the European Union (EU-ETS) and the Chinese carbon pilot markets in Hubei. The results show that fluctuations in carbon price returns have a leverage effect and that the impact of negative news on the market is stronger than that of positive news. The international climate and energy conferences, abnormal changes in traditional energy prices, and global public health emergencies all affect volatility and cause shocks to the carbon trading market. The modified ICSS-GARCH model with structural breaks can reduce the pseudovolatility of the return series to a certain extent and can improve the accuracy of the model. This research can give policymakers some implications about how to develop the carbon market and help market participants control the risks of fluctuations in carbon allowances. Regulators should enhance carbon price monitoring and focus on short-term shocks in the carbon market to reduce trading risks. The Chinese carbon market should strengthen the system design and develop carbon financial derivatives.

This paper focuses on the relationship between the European Union Emission Trading System allowances’ prices and the Italian electricity price, aiming at assessing whether such a mechanism has been a driver for the decarbonization of the power sector. To this aim, we calculate the long-run relationships between energy prices, natural gas prices and allowances’ prices, through a VECM model, distinguishing between peak and off-peak prices. The analysis is carried out for the third phase of the EU-ETS, which started in 2013, and for two-year rolling windows that account for changes over time of the pass-through rates. It is shown that the natural gas price has a high pass-through rate of roughly 70%, which is increasing over time. On the contrary, the pass-through rate of the allowances’ price is as low as 7% for the wholesale electricity price, being slightly more and less for the peak and off-peak prices, respectively. However, this rate has been substantially changing over time, starting from a high level and falling significantly, becoming negative in the recent years. This could signal that the EU-ETS has been increasingly more effective in endogenizing emission costs for power producers, inducing them to reduce their production costs associated with emissions by means of a change in technologies. However, the analysis of the impulse response functions hardly supports this finding, eventually casting doubts on the effectiveness of the EU-ETS in Italy to drive the transition toward a less carbon-intensive power supply.

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Mit diesem Beitrag schlagen wir einen zweistufigen Weg zu einer effektiven deutschen Klimapolitik vor. Die erste Stufe orientiert sich an der Schweizer CO2-Abgabe: Ab 2020 soll der Kohlendioxidausstoß im privaten Heizenergie- und Verkehrsbereich besteuert werden, da beide Sektoren nicht im EU-Emissionshandel erfasst werden. Wie im Schweizer Modell fließt das Steueraufkommen durch Transfers und Investitionen an die Bevölkerung zurück. Allerdings soll die direkte Rückerstattung auf die Hälfte der Steuereinnahmen beschränkt und auf das einkommensschwächste Drittel der Haushalte konzentriert werden. Die andere Hälfte soll zur Förderung des ländlichen ÖPNV und zur energetischen Sanierung von Mietshäusern eingesetzt werden. Damit wird Klimaschutz – ein Gebot intergenerationeller Gerechtigkeit – im Sinne einer Sozialen Marktwirtschaft umgesetzt: Der Klimaschutzbeitrag jedes Einzelnen orientiert sich auch an Leistungsfähigkeit und Bedürftigkeit. Ab 2030 sollte der zweite Schritt unseres Ansatzes einsetzen und das Steuermodell sukzessive in einen verbraucherbasierten Emissionshandel überführt werden. Ein funktionierendes Personal Carbon Trading System ist allerding technisch und rechtlich komplexer als eine CO2-Steuer. Die sofortige Umsetzung von Stufe eins schafft das nötige Zeitfenster für die Vorbereitung eines Zertifikatesystems für Heizenergie und Mobilität. Die oft angeführten Nachteile eines solchen Systems – hohe Transaktions- und Administrationskosten – halten wir aufgrund der Fortschritte in der Informationstechnologie bereits heute für händelbar. Dafür hätte ein solches System gegenüber einer Steuer folgende Vorteile: Es ist mit dem EU-ETS kompatibel, Emissionsziele werden sicher erreicht und jeder Verbraucher erkennt direkt, für welche CO2-Emissionen er persönlich verantwortlich ist. In this paper, we suggest a two-step approach to German climate policy. As a first step to be implemented in 2020, Germany should introduce a CO2 tax on fossil fuels which are consumed for private mobility and heating purposes. These emissions are currently not included in the EU-ETS cap. Similar to the Swiss carbon tax system, we suggest returning the revenue to the population. Unlike in Switzerland, though, direct refunds should concentrate on the poorest third of the German households and comprise only half of the tax yield. The other half should be spent on improving public transportation in rural areas and on subsidies for energy efficiency measures in apartment buildings. In accordance with the principles of a Social Market Economy, these measures would reconcile climate protection – as requested by intergenerational justice – and social justice: Individual contributions to climate protection depend on financial means. From 2030 on, Germany should start implementing a Personal Carbon Trading System to replace the tax solution – step two of our proposal. The tax solution creates the time slot needed for preparing the technically and legally more demanding consumer-based emissions trading system. Often it is claimed that such a consumer-based scheme is not feasible due to transaction and administration costs. Given the late progress in information technologies, we think most of these problems can be solved by now. Therefore, we think the implementation of a Personal Carbon Trading System is feasible, and it would provide the following advantages over a tax: the emission target is surely met, it is compatible with the existing EU-ETS, and each consumer directly realizes what emissions he or she is responsible for. [ABSTRACT FROM AUTHOR]

This paper aims to assess the direct economic impact on the maritime sector from its inclusion in the European Union-Emission Trading System (EU-ETS). The Monitoring, Reporting and Verification (MRV) data are analysed for the estimation of carbon dioxide (CO2) emissions within the European Economic Area (EEA). The economic impact assessment model used is scenario-based, and includes different price incentives, geographical coverage and emission allowances allocation methods. According to our findings, in case the emission allowances are fully auctioned or partially free allocated on the basis of a uniform benchmark, the increased costs would be disproportional among the maritime segments. Such a scheme would penalise Roll-on/Roll-off (RoRo) and Roll-On/Roll-Off/Passenger (RoPax) segments due their high fuel consumption per transport work in relation to oil tankers and bulkers. The establishment of differentiated benchmarks per segment seems to be a prerequisite for the effective inclusion of shipping in the EU-ETS that will reward energy efficient vessels in each segment and avoid competition distortion within the maritime industry.

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Abstract The present paper addresses two policy objectives: to implement a market for pollution permits and to make regulation acceptable for businesses. Profit-neutral permit allocations are defined as the number of permits that the regulator should give for free so that post-regulation profits (i.e. a firm's profits in the products market plus the value of the allowances granted for free) are equal to pre-regulation profits. The proposed model is developed by assuming that firms use polluting technologies and compete "à la Cournot". The paper demonstrates that a low number of free allowances is sufficient to meet these two goals. Moreover, the regulator can fully offset losses, even when the reduction in emissions is high, provided that the sectors concerned are not monopolies, both for isoelastic and linear demand functions. [ABSTRACT FROM AUTHOR]

In the next few years, it is estimated that the aviation sector will account for more than 15% of total GHG emissions against the current 5%. In order to curb emissions and, considering the rapid growth of this industry Directive 101/2008/EC has included the aviation sector in the European Union Emission Trading Scheme (EU-ETS), thus generating additional costs for airlines. This paper develops an original model to analyse the impact of EU-ETS on the aviation sector. This study expands previous researches by explicitly considering abatement efforts in the airline cost function, by highlighting interdependence effects using strategies to reduce emissions, firm actions in the secondary market, free allowances, and fines. Several policy implications, which are particularly useful in an operational perspective, can be derived to support policy-making decisions through a better understanding of the overall EU-ETS effects. The pattern of results suggests the presence of a trade-off in determining profits between the efficiency cost of individual airlines and the share of allowances distributed free of charge. From a regulatory industrial perspective, the higher the latter, the lower the incentives for airlines to reduce GHG emissions. Moreover, the higher is the number of airlines competing on the same air route, the lower is the increase of profits under a Cournot oligopoly, and/or a market collusion structure. Still pending is the final effect of different strategies adopted by airlines in the allowance market. [ABSTRACT FROM AUTHOR]

The European maritime shipping sector has a crucial role in reducing CO 2 emissions in order to meet the 1.5 °C target set in the Paris Agreement. This study uses state-of-the-art maritime emissions modelling to quantify CO 2 emissions in the North and Baltic Seas (34,932 t in 2015), and to assess the carbon mitigation potential of E-methanol when life-cycle emissions are taken into consideration. A reduction of 90% is possible by 2040 if all considered ships are replaced by ships powered by E-methanol. The assessment of a carbon budget for shipping in the North Sea and Baltic Sea (0.75 Gg for the period 2011–2011) shows that with a conservative estimate of annual carbon emissions, the budget will be consumed by 2030 if no countermeasures are taken. • State-of-the-art modelling to quantify CO 2 emissions in the North and Baltic Seas. • The use of e-methanol has the potential to reduce CO 2 emissions by 90% by 2040. • Allocated carbon budget for the North and Baltic Seas will be exhausted before 2035. • Maritime emissions show how difficult it will be to reach the Paris Agreement target. • Technological solutions will not be sufficient to achieve the 1.5 °C target. [ABSTRACT FROM AUTHOR]

The gradual relocation of part of the energy-intensive industries (EIIs) outside of Europe is one of the possible consequences of the combination of emission charges and higher electricity prices entailed by the EU-Emission Trading System (EU-ETS). The geographical distribution of cement plants is a relevant factor in relocation decisions because cement sector is characterized by high transportation costs. In order to mitigate this effect, EIIs have asked for CO $$_2$$ allowance grandfathering and long-term power contracts whereby they would be supplied from dedicated power capacities at a lower price. We model this situation on a prototype cement international market calibrated on ETS regulated and unregulated countries, with a particular focus on the Italian market. The analysis is based on an oligopolistic partial equilibrium model with a detailed technological representation of the whole production process. The model is a Generalized Nash game that accounts for the interactions of cement companies. In particular, we investigate the role played by the transportation costs in the clinker/cement production relocation and evaluates the effectiveness of CO $$_2$$ allowance grandfathering and of the application of long-term power contracts in mitigating this phenomenon. To this aim, we conduct empirical experiments taking into account different transportation costs and progressively higher CO $$_2$$ allowance prices with and without long-term contracts. Our results show that the European and Italian cement markets are affected by the EU-ETS and react by importing clinker from unregulated regions. Both allowance grandfathering and long-term power contracts only partially mitigate this relocation phenomenon. [ABSTRACT FROM AUTHOR]

This paper investigates the relationship between the price of pro-environmental behavior (PEB) and individuals’ voluntary choice to engage in PEB. Its approach combines two literatures: An experimental one that varies the price of consequential contribution decisions indirectly, and the stated preferences literature that elicits responses from subjects to direct, but hypothetical price variations. We apply this approach to the price elasticity of participating in climate change mitigation. In an online field experiment, we observe the decision of a representative sample of 2,440 subjects whether to reduce the emissions of CO 2 into the atmosphere by one metric ton or receive a monetary reward between €2 and €100. In contrast to previous findings from indirect price variation, but in line with stated preference approaches, voluntary PEB is found to have non-zero elasticity of probability (about − 0.3 across the treatment range). The inelastic response of the probability of PEB to direct price variation is robust with respect to a range of controls and with respect to the potential problem of field price censoring. [ABSTRACT FROM AUTHOR]

The EU emissions trading system (EU-ETS) is the EU's policy to combat climate change by reducing greenhouse gas emissions cost-effectively. CO 2 emissions from aviation have been included in the EU-ETS since 2012, and all airlines operating in Europe are required to report and submit allowances against those emissions. The EU-ETS is only applied to flights that begin or end in EU territory, therefore one of the options non-EU based airlines use to deal with the EU-ETS requirements is aircraft reassignment or flight route adjustment. We investigate strategic airline operations that address the carbon constraints on the air transport industry. A mathematical model and algorithm are developed to derive efficient strategies for airline operations in terms of aircraft reassignment and route adjustment. The proposed mathematical model and heuristic algorithm are verified with a numerical example. The results of this study provide practitioners with insights when dealing with environmental restrictions on airlines. [ABSTRACT FROM AUTHOR]

In the framework of the CCSP R&D program, the regulatory gaps have been assessed at VTT using the current monitoring rules for capture, pipeline transportation and geological storage of CO 2 as a benchmark. The scope of the presented work includes: (i) definition of CO 2 emissions from ship transportation of CO 2 ; (ii) review of EU regulations on MRV of maritime CO 2 emissions; and (iii) review of the MRV regulation on capture, transport and geological storage of CO 2 under the EU-ETS. The considered activities related to ship transportation of CO 2 are liquefaction and intermediate storage with recirculation loop for boil-off CO 2 , loading and unloading facilities and CO 2 transportation and handling during the ship voyage. Identification of the regulatory gaps, based on the above, shows what is needed to enable ship transportation of CO 2 for geological storage in Europe. Based on the results, maritime transportation for CCS could be made possible with very limited new emission monitoring and verification practices. Also the trade-offs of using an MRV regulation analogous to pipeline transportation of CO 2 is discussed in the results. [ABSTRACT FROM AUTHOR]

According to art. 3.3 and 3.4 of the Kyoto Protocol it is possible to achieve the emissions reductions goals through removals by sinks resulting mostly from afforestation, reforestation and forest management activities. At the moment the EU-ETS scheme does not allow the trade of LULUCF credits, though the member states can use the RMUs or develop CDM projects on afforestation and reforestation (tCER/lCER) to achieve the emissions reductions goals. This paper will focus on the impact on the EU-ETS allowance price of the trade of LULUCF credits and will analyze the key-role that the rewarding of avoided deforestation credits (REDD credits) could play against the deforestation of Amazon Rainforest.

Increased consumption of fossil fuels in industrial production has led to a significant elevation in the emission of greenhouse gases and to global warming. The most effective international action against global warming is the Kyoto Protocol, which aims to reduce carbon emissions to desired levels in a certain time span. Carbon trading is one of the mechanisms used to achieve the desired reductions. One of the most important implications of carbon trading for industrial systems is the risk of uncertainty about the prices of carbon allowance permits traded in the carbon markets. In this paper, we consider stochastic and time series modeling of carbon market prices and provide estimates of the model parameters involved, based on the European Union emissions trading scheme carbon allowances data obtained for 2008-2012 period. In particular, we consider fractional Brownian motion and autoregressive moving average-generalized autoregressive conditional heteroskedastic modeling of the European Union emissions trading scheme data and provide comparisons with benchmark models. Our analysis reveals evidence for structural changes in the underlying models in the span of the years 2008-2012. Data-driven methods for identifying possible change-points in the underlying models are employed, and a detailed analysis is provided. Our analysis indicated change-points in the European Union Allowance (EUA) prices in the first half of 2009 and in the second half of 2011, whereas in the Certified Emissions Reduction (CER) prices three change-points have appeared, in the first half of 2009, the middle of 2011, and in the second half of 2012. These change-points seem to parallel the global economic indicators as well. Copyright © 2016 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

Environmental system thresholds have been crossed for a number of dimensions of global environmental pollution, such as greenhouse gas emissions. Under this scenario, institutions and corporations are required to implement sustainable policies as a condition for humanity staying within planetary boundaries. Accordingly, the European Union created the largest Emissions Trading Scheme in the world with the aim of properly managing corporations' carbon dioxide reductions. This paper aims to contribute to the literature focused on testing the effectiveness of institutional environmental management policies. Specifically, this research evaluates whether the objectives of the European Union Emissions Trading Scheme are partially achieved by analyzing the dynamics of carbon assets and the main energy commodities worldwide. This paper provides relevant information both for policy makers and company managers so that contributions towards the common goal of developing a clean energy future and curbing climate change are ameliorated. Based on wavelet coherence analysis, this paper proposes a model-free way of estimating the time-varying correlations between carbon assets and energy commodities at both high and low frequencies. Our central results reveal that carbon assets and energy commodities present a changing lead/lag behavior at different frequencies. The energy commodities lead the European Union Allowances returns at medium frequencies, but the contrary was true for the highest investment horizons. This finding should be in line with the goal of significantly reducing emissions because during long cycles if the majority of companies have not switched to cleaner industrial processes, they must buy more carbon assets, increasing their prices. In that case, energy commodities would be more expensive because of the energy commodities' market behavior during long-term horizons with European Union Allowances lead. The Certified Emissions Reductions lead in a negative way most of the energy commodities at medium frequencies, thus indicating that investors handling energy commodities-oriented portfolios could incorporate the mentioned carbon assets for diversification purposes. These specific findings suggest that polluting activities would be more expensive, which would provide an incentive to companies to implement environmentally–friendly industrial processes. The European Union Emissions Trading Scheme can result in significant emission reductions and compliance of the European Union with the objectives of the Kyoto Protocol. [ABSTRACT FROM AUTHOR]

The electricity sector is the largest participant in the European Union Emissions Trading Scheme (EU-ETS). This paper studies how the European Union Allowance (EUA) market – the carbon market in the European Union (EU) – has impacted the magnitude and volatility of stock returns of electricity companies in the EU-ETS. The investigation is undertaken for both Phases I and II of the EU-ETS based on simple OLS, panel data and time-series analysis. The results indicate that the relationship between the EUA market and stock returns of electricity companies was largely driven by strong market shocks recorded in both periods. If the market shock impact is controlled, this relationship depends on the carbon intensity of the electricity generators. The stock returns of carbon-intensive companies are negatively affected by the EUA returns, while the opposite is true for less carbon-intensive producers. The volatility of stock returns of electricity companies is significantly driven in the same direction by the volatility of the EUA market. [ABSTRACT FROM AUTHOR]

The low prices in the European Emission Trading System (EU ETS) have triggered discussions of various possible reforms. One option is to decouple the CO 2 prices from renewable energy policy by adjusting the emission cap to renewable energy investment overshoots. We introduce two ways of reducing the CO 2 cap in response to overshoots of renewable policy investment over previously announced targets. We investigate these options with the agent-based model EMLab-generation. We find that both policy implementations are successful in restoring prices. They also ensure that making public investments that exceed policy targets contribute to carbon emission reduction, and that renewable policy does not benefit the most emission-intensive power plants. However, neither policy is suitable for achieving specifc levels of prices or price volatility. [ABSTRACT FROM AUTHOR]