Carbon spot prices in equilibrium frameworks associated with climate change

Zhenzhen Wang; Hao Dong; Zhehao Huang

doi:10.3934/jimo.2021214

Article Contents

2023, Volume 19, Issue 2: 961-983. Doi: 10.3934/jimo.2021214

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Carbon spot prices in equilibrium frameworks associated with climate change

1.
School of Mathematics and Statistics, Guangdong University of Foreign Studies, Guangzhou, 510006, China
2.
Lingnan (University) College, Sun Yat-Sen University, Guangzhou, 510275, China
3.
Guangzhou Institute of International Finance, Guangzhou University, Guangzhou, 510405, China

^* Corresponding author: Zhehao Huang
^* Corresponding author: Zhehao Huang

Received: July 2021

Revised: October 2021

Early access: December 2021

Published: February 2023

The work was supported by the National Natural Science Foundation (No.12101622)

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Abstract

At present, it is believed that the best approach to mitigate global warming is the market-based formulation of carbon emission pricing. Thus, in this paper, we work on determining the carbon spot prices in a stochastic equilibrium framework associated with climate change. Two circumstances, differentiated by whether taking carbon trading in the market, are considered. We construct optimization problems and solve them by using dynamic programming principle. The Fourier transform and its properties are fully made use of to return the explicit formulas of carbon prices. In addition, some surprising but interesting properties of the carbon prices are also found. First, the carbon prices happen jumps at the end of the abatement period. Second, the return rates of carbon prices are completely dependent on the climate elements. Finally, we present some numeric results in response to our theoretical results.

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Mathematics Subject Classification: Primary: 91B74, 90C39; Secondary: 90C90.

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Figure 1. Carbon price surface in the circumstance without considering carbon trading

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Figure 2. Carbon price curves with respect to different carbon emissions in the circumstance without considering carbon trading

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Figure 3. Carbon price surfaces in the circumstance with considering carbon trading with respect to different carbon market prices

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Figure 4. Carbon price surfaces in the circumstance with considering carbon trading with respect to different carbon emissions

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