Carbon Cap-and-trade Pricing Mechanism Based on Cooperative Game Theory

Abstract

Abstract:

Carbon trading pilot was launched in China recently, and the next urgent task is to form a carbon cap-and-trade pricing mechanism. Given that the carbon market in China is highly fragmented, immature and lacking of transactions, this paper proposes a carbon cap-and-trade pricing mechanism based on cooperative game theory and takes account of particularly complex risk system of carbon market. This paper firstly determines the risk value of cap-and-trade by Analytic Network Process, which considers all risk factors of the carbon market synthetically. Then, to disperse the trading risk, B-C index is applied to discuss the choice of trading partners and the trading volume. Finally, this paper discusses the rationality of the carbon trading profit distribution by Shapley value and Nucleolus method, which guarantees the stability of the alliance. Here, carbon cap-and-trade price can be calculated by profit formula. The study shows that applying this three-stage game model to simulate the carbon cap-and-trade pricing mechanism can disperse trading risk effectively and solve the problem that the risk of carbon trading market is larger and more complex than common market. Hence, it is the key driver for implementing unified carbon market in China.

Key words: carbon cap-and-trade, B-C index, Analytic Network Process (ANP), Shapley value method, nucleolus method

Xie Jingjing, Dou Xiangsheng. Carbon Cap-and-trade Pricing Mechanism Based on Cooperative Game Theory[J]. , 2016, 28(2): 15-24.

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