Zhixin Liu

CO₂ emissions and debt accumulation are twin threats to sustainable development. To fill the gap that few studies can untangle the reasons behind CO₂ emissions from the debt perspective, we illustrate debt can cause CO₂ emissions through various channels. We then examined how debt-based drivers impact emission trajectories. We use the logarithmic mean Divisia index (LMDI) method to decompose the emission changes into five factors. We make decomposition analyses between different country groups to identify their respective characteristics. Further, to investigate the potential financial crisis impacts, we consider the full period 2001–2019 and two sub-periods (pre- and post-2008). The results show that the gross domestic product (GDP) is always the biggest contributor to emissions, whose effect on advanced economies saw a bigger decrease after 2008 than that on emerging economies. Debt–GDP is second only to GDP in contributing to emissions. It has a similar impact on emissions before and after 2008 for advanced economies, while it rockets after 2008 for emerging economies. Private debt financing of fossil fuels is the prominent inhibitor for both economies, especially for emerging economies. It has a stronger mitigation impact after 2008 than before for emerging economies, while has the opposite change for advanced economies. Debt structure and fossil CO₂ intensity have relatively smaller effects on emissions. The crisis is an opportunity to promote low-carbon development. Since the COVID-19 pandemic is analogous to the 2008 crisis in terms of debt level and emission change, we provide recommendations for emission mitigation in the post-pandemic context.

The European Union (EU) views the carbon border adjustment mechanism (CBAM) as a measure to tackle carbon leakage, which will have a profound impact on non-EU countries’ exports. Policymakers are faced with the question of how to deal with the CBAM. In contrast to previous studies, we explore the effects of the CBAM on non-EU countries from a dynamic game perspective. This study analyzed the potential effects of the CBAM on China and found that the government and export companies are the two main stakeholders. We found that they can both choose whether to respond actively or passively. Based on their interactive relationship, we adopted an evolutionary game to model the nexus between the government and export companies. We analyzed the evolutionary stable state of each stakeholder and the whole game with the replicator dynamic equation system. To make the system evolve to the optimal state where the government reacts actively and export companies implement low-carbon production, we provide a policy mechanism for how to set key parameters’ values. We used numerical simulation to verify the policy design and to conduct sensitivity analyses of the key parameters. Our results show that, when two stakeholders positively react to the CBAM, it is necessary to increase their profits and to reduce their costs. Therefore, some suggestions are proposed, including optimizing the trade structure, strengthening cooperation with the EU, improving the current carbon market, and adopting carbon tax.

Based on the prices selected from European Energy Exchange (EEX) from 2013 to 2018, we investigate the inter-correlation of carbon spot and futures markets. Specifically, we adopt the widely used DCC-GARCH model and VAR-BEKK-GARCH model to conduct a comprehensive analysis on the carbon market, i.e., the dynamic correlation and volatility spillover between carbon spot and carbon futures. Moreover, we develop a hedge strategy based on the VAR-BEKK-GARCH model and calculate the hedging effectiveness (HE) value to evaluate the strategy performance. The empirical results show that (i) during our sample period, carbon spot and futures markets are highly correlated, (ii) carbon spot overflows to the futures market and vice versa, and (iii) the HE value is equal to 0.9370, indicating a good performance for the hedging strategy. Then, we provide further discussion on the relationship between carbon spot and futures markets by replacing our dataset with the data of phase II. The results do not change our conclusions on the dynamic correlation and volatility spillover. However, the HE value of phase III is higher than that of phase II, which indicates that the carbon futures market of phase III is not only an available market to hedge risk from the contemporaneous carbon spot market but also has a better hedge effectiveness than phase II.

Carbon allowances traded in the EU-Emission Trading Scheme (EU-ETS) were initially designed as an economic motivation for efficiently curbing greenhouse as emissions, but now it mimics quite a few characteristics of financial assets, and have now been used as a candidate product in building financial portfolios. In this study, we examine the time-varying correlations between carbon allowance prices with other financial indices, during the third phase of EU-ETS. The results show that, at the beginning of this period, carbon price was still strongly corrected with other financial indices. However, this connection was weakened over time. Given the relative independence of carbon assets from other financial assets, we argue for the diversification benefits of including carbon assets in financial portfolios, and building such portfolios, respectively, with the traditional global minimum variance (GMV) strategy, the mean-variance-OGARCH (MV-OGARCH) strategy, and the dynamic conditional correlation (DCC) strategy. It is shown that the portfolio built with the MV-OGARCH strategy far out-performs the others and that including carbon assets in financial portfolios does help reduce investment risks.