Price Determinants in China's Pilot Carbon Markets

This paper examines the determinants of carbon price in Hubei carbon market using VECM model. Six factors from three dimensions (international carbon price, energy price and exchange rate) are taken into account, both cointegration test and impulse response analysis are conducted to examine the long-run relationship and dynamic reaction of chosen variables. The result shows that long-run equilibrium exists among carbon price, energy price and dollar exchange rate. Innovations from EUAs, coal, natural gas and dollar exchange rate have negative influence on carbon price in the short-run, while innovations from crude and CERs will lead to positive responses.