A Fuzzy Stochastic Model for Carbon Price Prediction Under the Effect of Demand-related Policy in China's Carbon Market

Yazhi Song, Tiansen Liu, Dapeng Liang, Yin Li and Xiaoqiu Song

Ecological Economics, 2019, vol. 157, issue C, 253-265

Abstract: The establishment of China's carbon market has an obvious policy-oriented feature, and the carbon price is easily affected by demand-related policies within a compliance period. As prior models cannot help with clear simulation of the volatility of carbon price in China, this paper develops a fuzzy stochastic model to predict such price under the effect of demand-related policy. First, we quantify corporate final profit obtained from carbon trading based on different free allowance policies to measure the actual allowance demand in the carbon market. Second, based on such demand, we add the fuzzy number in each parameter of a stochastic differential equation and then develop a fuzzy stochastic model that can help to analyse the effect of demand-related policy on carbon price in the immature carbon market. Third, by analysing the demand-related policy formulated in the second-developing-phase of the Shanghai Environment and Energy Exchange (from Nov. 17 in 2016) through our model, we predict the price trend after each demand-related policy publication. Experimental results reveal the accurate fitting effect of the developed model that can help to estimate the supply-and-demand in the carbon market and evaluate the effectiveness of current carbon trading policy as well. Further, our model can provide a robust theoretical implication for both corporate carbon trading strategies and governmental regulations on carbon demand-related policy.

Keywords: China's carbon market; Demand-related policy; Carbon price prediction; Shanghai Environment and Energy Exchange; Fuzzy stochastic model (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0921800918300028
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:157:y:2019:i:c:p:253-265

DOI: 10.1016/j.ecolecon.2018.10.001

Access Statistics for this article

Ecological Economics is currently edited by C. J. Cleveland

More articles in Ecological Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().