Price Dynamics and Interactions between the Chinese and European Carbon Emission Trading Markets

Author:

Cheng Qiyun1,Qiao Huiting1,Gu Yimiao2,Chen Zhenxi3ORCID

Affiliation:

1. Energy Development Research Institute, China Southern Power Grid, Guangzhou 510623, China

2. Department of Electronic Business, South China University of Technology, Guangzhou 510640, China

3. School of Economics and Finance, South China University of Technology, Guangzhou 510640, China

Abstract

The European carbon emission trading market is the largest and most mature market, while China’s carbon market has a short history. Institutionally, cross-market transaction is infeasible between the two markets. This paper investigates the long-run trend between the two markets as well as the price dynamics. Results show that a long-run trend exists between the Chinese and European carbon markets. Both markets possess self-correction capability in reducing price deviations, signaling a certain level of market efficiency. However, both markets also exhibit pricing inefficiency as historical price movements are able to impact prices. The European market informationally leads the Chinese market. Policy implications are that China should further upgrade its information disclosure system, such as unifying information disclosure standards across industries, and further develop its carbon derivatives markets to improve market transparency and market competition.

Publisher

MDPI AG

Subject

Energy (miscellaneous),Energy Engineering and Power Technology,Renewable Energy, Sustainability and the Environment,Electrical and Electronic Engineering,Control and Optimization,Engineering (miscellaneous),Building and Construction

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