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In the field of economic analysis, the study of the EU ETS policy has primarily focused on the impact of renewable energy consumption on economic growth, as well as the role of legal and fiscal instruments in the development of clean energy. This study aimed to evaluate the effectiveness of the EU ETS policy in altering the energy mix of selected European countries, providing both cognitive and applicational value. The evaluation of the effectiveness of this policy focused on the structure of the energy mix and the relationship between rising CO2 emission allowance prices and the decreasing share of coal in the energy mix. The goal was achieved through statistical analysis of secondary sources, primarily sourced from Bloomberg (2016–2024). The research findings indicated that changes in the structure of energy sources varied across the studied European countries, due to the adopted energy source utilization strategy, resource availability, and geopolitical situations. Additionally, different correlation values were noted between rising CO2 emission allowance prices and the expected reduction in fossil fuel use. Therefore, the EU ETS policy does not fulfill its assigned role—its implementation contributes to disparities in the economic situations of European economies and creates conditions for unequal competition.

The purpose of this article is to assess the impact of carbon allowances on the financial performance and strategic behavior of Polish energy companies listed on the Warsaw Stock Exchange, with a particular focus on the period when the price of these allowances increased. The eight largest Polish energy companies were surveyed, and the research period covered the period of 2010–2021. The research process used an analysis of financial condition and its determinants in the current and long-term perspective. In the current approach, the following were used: sales margin, operating margin, and cost and revenue structure. In the long-term approach, an assessment of the regularity of the capital structure and debt ratios was used. In both research perspectives, the results were confronted with the structure of power generation sources and the segmentation of the core business, including production, distribution, and trading. The results allow us to conclude that the increase in the price of emission allowances has adversely and most strongly affected companies focused on energy generation from high-carbon sources.

In this paper, we forecast the price of CO2 emission allowances using an artificial intelligence tool: neural networks. We were able to provide confident predictions of several future prices by processing a set of past data. Different model structures were tested. The influence of subjective economic and political decisions on price evolution leads to complex behavior that is hard to forecast. We analyzed correlations with different economic variables related to the price of CO2 emission allowances and found the behavior of two to be similar: electricity prices and iron and steel prices. They, along with CO2 emission allowance prices, were included in the forecasting model in order to verify whether or not this improved forecasting accuracy. Only slight improvements were observed, which proved to be more significant when their respective time series trends or fluctuations were used instead of the original time series. These results show that there is some sort of link between the three variables, suggesting that the price of CO2 emission allowances is closely related to the time evolution of the price of electricity and that of iron and steel, which are very pollutant industrial sectors. This can be regarded as evidence that the CO2 market is working properly.

More than 25% of the total energy consumption in Finland has been produced with wood fuels. Since 2012, the share has been greater than that of oil, coal, or natural gas. Internal carbon pricing is used to manage the risks in wood procurement after wood import from Russia ended. Further, the EU announced plans to sell more carbon emission permits to fund the EU’s exit from Russian energy. To manage these challenges, a data-driven internal carbon pricing mechanism (DDICPM) has been developed for wood procurement optimization. Particularly, local changes are considered via available information about growth-based carbon sinks (GBCS). The results of the new scenario were compared to the basic national scenario that ensures carbon neutrality in forestry. The DDICPM may provide the optimum wood-procurement operations maintaining carbon neutrality in the integrated energy and material industry (IEMI). In this study, the use of DDICPM increased profitability b 16.2, 16.1, and 16.0% between adapted wood procurement areas at the EU’s emission allowance prices of 30, 65, and 98 € t−1 CO2. The experiments’ results also revealed that the DDICPM could consistently and significantly outperform the conventional solution adopted by the company in terms of economic costs. A significant conclusion is that an increase in profitability is possible if the size of wood procurement areas is allowed to vary optimally with respect to transport distance to take advantage of the GBCS as a new application of the renewable carbon sink.

Carbon markets are substantial and they are expanding. There are many lessons from market experiences over the past eight years: there should be fewer free allowances, better management of market-sensitive information, and a recognition that trading systems require adjustments that have consequences for market participants and market confidence. Moreover, the emerging market architecture features separate emissions trading systems serving distinct jurisdictions and a variety of other types of policies exist alongside the carbon markets. This situation is in sharp contrast to the top-down, integrated global trading architecture envisioned 15 years ago by the designers of the Kyoto Protocol and raises a suite of new questions. In this new architecture, jurisdictions with emissions trading have to decide how, whether, and when to link with one another. Stakeholders and policymakers must confront how to measure the comparability of efforts among markets as well as relative to a variety of other policy approaches. International negotiators must in turn work out a global agreement that can accommodate and support increasingly bottom-up approaches to carbon markets and climate change mitigation.

Two decades have passed since the Clean Air Act Amendments of 1990 launched a grand experiment in market-based environmental policy: the SO2 cap-and-trade system. That system performed well but created four striking ironies: First, by creating this system to reduce SO2 emissions to curb acid rain, the government did the right thing for the wrong reason. Second, a substantial source of this system's cost-effectiveness was an unanticipated consequence of earlier railroad deregulation. Third, it is ironic that cap-and-trade has come to be demonized by conservative politicians in recent years, as this market-based, cost-effective policy innovation was initially championed and implemented by Republican administrations. Fourth, court decisions and subsequent regulatory responses have led to the collapse of the SO2 market, demonstrating that what the government gives, the government can take away. [PUBLICATION ABSTRACT]

Emissions trading is a market-based mechanism for curbing emissions, and it has been implemented in Europe, North America, and several other parts of the world. To study its impact on production planning, we develop a dynamic production model, where a manufacturer produces a single product to satisfy random market demands. The manufacturer has access to both a green and a regular production technology, of which the former is more costly but yields fewer emissions. To comply with the emissions regulations, the manufacturer can buy or sell the allowances in each period via forward contracts in an outside market with stochastic trading prices while needing to keep a nonnegative allowance account balance at the end of the planning horizon. We first derive several important structural properties of the model, and based upon them, we characterize the optimal emissions trading and production policies that minimize the manufacturer's expected total discounted cost. In particular, the optimal emissions trading policy is a target interval policy with two thresholds that decrease with the starting inventory level. The optimal production policy is established by first determining the optimal technology choice and then showing the optimality of a base-stock type of production policy. We show that the optimal base-stock level is independent of the starting inventory level and the allowance level when the manufacturer trades the allowance or uses both technologies simultaneously. A numerical study using representative data from the cement industry is conducted to illustrate the analytical results and to examine the value of green technology for the manufacturer.

About 45 years ago a few economists offered the novel idea of trading pollution rights as a way of meeting environmental goals. Such trading was touted as a more cost-effective alternative to traditional forms of regulation, such as specific technology requirements or performance standards. The principal form of trading in pollution rights is a cap-and-trade system, whose essential elements are few and simple: first, the regulatory authority specifies the cap—the total pollution allowed by all of the facilities covered by the regulatory program; second, the regulatory authority distributes the allowances, either by auction or through free provision; third, the system provides for trading of allowances. Since the 1980s the use of cap and trade has grown substantially. In this overview article, I consider some key lessons about when cap-and-trade programs work well, when they perform less effectively, how they work compared with other policy options, and how they might need to be modified to address issues that had not been anticipated.

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.

PurposeThe purpose of this study is to investigate which of the two carbon allowance allocation methods (CAAMs), i.e. grandfathered system carbon allowance allocation (GCAA) and baseline system carbon allowance allocation (BCAA), is more beneficial to capital-constrained supply chains under the carbon emission allowance repurchase strategy (CEARS).Design/methodology/approachAdopting CEARS to ease the capital-constrained supply chains, this study develops two-period game models with manufacturers as leaders and retailers as followers from the perspective of profit and social welfare maximization under two CAAMs (GCAA and BCAA), where the first period produces normal products, and the second period produces low-carbon products.FindingsFirst, higher carbon-saving can better use CEARS and achieve a higher supply chain profit under the two CAAMs. However, the higher the end-of-period carbon price is, the lower the social welfare is. Second, when carbon-saving is small, GCAA achieves both economic and environmental benefits; BCAA reduces carbon emissions at the expense of economic benefit. Third, the supply chain members gain higher profits and social welfare under GCAA, so the government and supply chain members are more inclined to choose GCAA.Originality/valueBy analyzing the profits and total carbon emissions of capital-constrained supply chains under GCAA and BCAA, this study provides theoretical references for retailers and capital-constrained manufacturers. In addition, by comparing the difference in social welfare under GCAA and BCAA, it provides a basis for the government to choose a reasonable CAAM.