Equilibrium pricing for carbon emission in response to the target of carbon emission peaking

Zhehao Huang, Hao Dong and Shuaishuai Jia

Energy Economics, 2022, vol. 112, issue C

Abstract: The climate warming effect on global economic output and social sustainability should be paid adequate attention. Nowadays, the best way is thought as the market-based pricing policy for carbon emission, which can reflect the emission cost by directly considering the economic efficiency. In response to the target of peak carbon emission before 2030 by China, this paper formulates an equilibrium carbon price by setting up a stochastic equilibrium model, depicting the interplay between the national economic output, carbon emission and climate change. An explicit pricing formula for carbon emission is presented, which clearly discloses the intrinsic link of carbon price to other considered variables and parameters. In addition to this, some interesting results are achieved. First, we calculate the drift and the approximate volatility of the carbon price. It is found that the drift is completely determined by the climate elements, while the approximate volatility shows a three-dimensional surface structure, not only time- and price-dependent, but also dependent on the carbon emission. Second, we find that the carbon price happens a jump at the deadline of the abatement period, in response to the failure of carbon abatement. Third, via sensitivity analysis, we capture the bifurcation phenomena in the carbon price induced by the economic growth rate and negative effect of climate warming. In conclusion, our equilibrium carbon price plays the role of benchmark in the national carbon emission trading market, leading to the realization of the abatement target.

Keywords: Carbon price; Stochastic equilibrium model; Climate finance; Carbon abatement; Environmental economics (search for similar items in EconPapers)
JEL-codes: C02 C61 G12 P28 Q41 Q54 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:112:y:2022:i:c:s0140988322003140

DOI: 10.1016/j.eneco.2022.106160

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