Impacts on CO2 Emission Allowance Prices in China: A Quantile Regression Analysis of the Shanghai Emission Trading Scheme

Abstract

A pilot regional carbon emission trading scheme (ETS) has been implemented in China for more than two years. An investigation into the impacts of different factors on carbon dioxide (CO₂) emission allowance prices provides guidance for price-making in 2017 when the nation-wide ETS of China will be established. This paper adopts a quantile regression approach to estimate the impacts of different factors in Shanghai emission trading scheme (SH-ETS), namely, economic growth, energy prices and temperature. The empirical analysis shows that: (i) the economic growth in Shanghai leads to a drop in the carbon allowance prices; (ii) the oil price has a slightly positive effect on the allowance prices regardless of the ordinary least squares (OLS) or quantile regression method; (iii) a long-run negative relationship exists between the coal price and the Shanghai emission allowances (SHEA) prices, but a positive interaction under different quantiles, especially the 25%–50% quantiles; (iv) temperature has a significantly positive effect at the 20%–30% quantiles and a conspicuous negative impact at the right tail of the allowances prices.