Fragmented or Unified? The State of China’s Carbon Emission Trading Market

Liangzheng Wu, Yan Huang and Yimiao Gu ()
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Liangzheng Wu: Energy Development Research Institute, China Southern Power Grid, Guangzhou 510623, China
Yan Huang: Energy Development Research Institute, China Southern Power Grid, Guangzhou 510623, China
Yimiao Gu: Department of Electronic Business, South China University of Technology, Guangzhou 510641, China

Energies, 2023, vol. 16, issue 5, 1-11

Abstract: China has adopted a gradualism principle in establishing its carbon emission trading system from the regional pilot markets to a national one. In view of the huge market potential and large differences across China, this paper applies the cointegration test and VECM (Vector Error Correction Model) to investigate the long-run trends and the price dynamics of regional pilot markets. The results show that the prices of the regional pilot markets form three long-run trends exhibit mean-reversion patterns. The launch of the national market marks the different performance of regional pilot markets. After the launch of the national market, the number of long-run trends reduces from three to one and the severity of the mean-reversion patterns is eased, indicating the efficiency improvement in China’s carbon market from a fragmented toward a unified market. The policy implication is that China should further develop its national market by incorporating the regional markets into the national one and encouraging more market participants for market transaction.

Keywords: carbon market; long-run trend; China carbon price (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2023
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