Summary:
At the G20 Summit in Hangzhou, China, in 2016, China submitted its instrument of ratification of the Paris Agreement to the UN, and made a solemn commitment to the international community to meet its voluntary emission reduction targets, as follows: “China will reach its peak in carbon dioxide emission before 2030 and its intensity of carbon dioxide emission will decrease by 60% to 65% in 2030 compared to that in 2005.” To achieve this goal, the Chinese government has not only dynamically adjusted its energy conservation and emission reduction policies, but also tried to establish a carbon-trading market. However, the development of enterprises entails considerable pollution, and corporate energy projects are characterized by a large investment scale, long cycles, and strong irreversibility; thus the effect of carbon emission reduction policy tools is limited. Due to constraints on the selection of cases, sample data, and research methods, research is still lacking on how to introduce rational expectation to investment behavior in corporate energy projects. As an important policy tool for the government to realize carbon dioxide emission reductions, China's pilot carbon-trading market offers a concrete natural experimental setting to test whether corporate rational expectations affect energy investment behavior. In late 2011, the Chinese government approved regional pilots for a carbon-trading market in seven provinces and cities by the end of 2013, including Beijing and Shanghai, thus sending an important signal to the market. It means that corporate investment in or operation of high carbon emission projects may increase carbon-permit costs in the future, which may encourage enterprises to adjust investment decisions and operations in relation to high-and low-emission energy projects. At the same time, the power generation industry is not only the largest consumer of energy, especially fossil energy, but also the main source of carbon dioxide and other pollutants. Therefore, this paper investigates the effect of China's carbon-trading market pilot policy on the investment behavior of power generation projects in China. By dividing power generation investment projects into high-emission and low-emission categories, the installation capacity of power generation technology or the average utilization hours of power generation projects and other physical measures are used to reflect enterprises' actual investment in power generation projects or effective utilization of the investment. On this basis, it is possible to construct a theoretical model of the investment behavior of inter-period enterprise power generation projects. The difference-in-differences method is adopted to empirically test how the government's carbon-permit market pilot policy affects enterprises' application of rational expectations to investment in power generation projects. The results show that companies have rational expectations of the carbon-trading market pilot to be implemented by the government in the future. In the pilot regions, enterprises began to adjust their investment in high-emission and low-emission power generation technology when the government issued the plan, which significantly reduced investment in high-emission power generation projects and increased investment in low-emission power generation projects. In particular, they significantly increased investment in thermal power generation projects with low-emission characteristics. This study broadens research on the application of rational expectation to energy project investment, and demonstrates the existence of rational expectation in the investment behavior of energy projects. Even more importantly, it indicates that the planning period before the formal implementation of environmental regulation policy by the government will have the expected management effect on the investment behavior of enterprises. By signaling its emission reduction policies to promote enterprises' prior adjustment, the government can better meet its emission reduction commitments.
Arellano, María-Soledad and Serra Pablo.2007.“A Model Of Market Power In Electricity Industries Subject To Peak Load Pricing”,Energy Policy, 35(10):5130～5135.
[10]
Aumann Robert J. and Jacoues H. Dreze.2008.“Rational Expectations in Games”,American Economic Review,98(1):72～86.
[11]
Bai J. and Perron P.1998.“Estimating And Testing Linear Models With Multiple Structural Changes”,Econometrica,66(1):47～78.
[12]
BP.2019.“Statistical Review of World Energy”,UK,London.
[13]
Brauneis Alexander, Roland Mestel and Stefan Palan.2013.“Inducing Low-Carbon Investment In The Electric Power Industry Through A Price Floor For Emissions Trading”,Energy Policy,53(C):190～204.
[14]
Bonenti Francesca,Oggioni Giorgia,Allevi Elisabetta and Marangioni Giacomo.2013.“Evaluating the EU ETS Impacts on Profits,Investments and Prices of the Italian Electricity Market”,Energy Policy, 59(8):242～256.
[15]
Brown P. David.2018.“Capacity Payment Mechannisms and Investment Incentives in Restructured Electricity Markets”,Energy Economics,74(8):131～142.
[16]
Dong Feng,Dai Yuanju, Zhang Shengnan,Zhang Xiaoyun and Long Ruyin.2019.“Can A Carbon Emission Trading Scheme Generate The Porter Effect？ Evidence From Pilot Areas in China”, Science of The Total Environment, 653(2):565～577.
[17]
Duan, H. B.,G.P. Zhang,L. Zhu,Y. Fan and S. Y. Wang.2016.“How will Diffusion of PV Solar Contirbute to China's Emission-peaking and Climate Response？”Renewable and Sustainable Energy Reviews, 53(1):1076～1085.
[18]
Friedman, M..1968.“The Role of Monetary Policy”, American Economic Review, 58(1):1-17
[19]
Hall, C.A.S., Lambert, J.G. and Balogh, S.G..2014.“EROI of Different Fuels and The Implications for Society”, Energy Policy, 64(1):141～152.
[20]
Hiloidhari Moonmoon,Kathleen Araújo,Shilpi Kumari,D. C.Baruah,T. V. Ramachandra,Rupam Kataki and I. S. Thakura.2018.“Bioelectricity From Sugarcane Bagasse Co-generation In India？An Assessment Of Resource Potential, Policies And Market Mobilization Opportunity For The Case Of Uttar Pradesh”,Journal of Cleaner Production, 182(1):1012～1023.
[21]
Hodge,D..2017.“The Remarkable Persistence Of The Rational Expectations Hypothesis”,Journal for Studies in Economics and Econometrics, 2017,47(2):19～44.
[22]
Huber, Matthias and Weissbart, Christoph.2015.“On The Optimal Mix of Wind and Solar Generation In The Future Chinese Power System”, Energy, 90(10):235～243.
[23]
Laurikka H and Koljonen T..2006.“Emissions Trading And Investment Decisions In The Power Sector—A Case Study In Finland”, Energy Policy, 34(9):1063～1074.
[24]
Li Feifei, Xu Zhe and Ma Hui.2018.“Can China Achieve its CO2 Emissions Peak By 2030？”,Ecological Indicators , 84(1):337～344.
[25]
Li Jifeng, Ma Zhongyu, Zhang Yaxiong and Wen Zhichao.2018.“Analysis on Energy Demand and CO2 Emissions in China Following the Energy Production and Consumption Revolution Strategy and China Dream Target”,Advances in Climate Change Research, 9(1):16～26.
[26]
Li Mingquan and Patiño-Echeverri Dalia.2017.“Estimating Benefits and Costs of Policies Proposed in the 13th FYP to Improve Energy Efficiency and Reduce Air Emissions of China's Electric Power Sector”,Energy Policy, 111(12):222～234.
[27]
Lucas, Robert E. Jr..1998.“Optimal Investment with Rational Expectations”,in R. Lucas and T. Sargent(eds.)”, Rational Expectations and Econometric practice”,Minneapolis,University of Minnesota Press.
[28]
Lucas, R.E..1973.“Some International Evidence on Inflation-output Tradeoffs”,American Economic Review, 63(3): 326～334.
[29]
Lucas R.E..1976.“Econometric Policy Evaluation:A Critique”,In Brunner K. and Meltzer A. H.(eds)”,Stablization Of The Domestic and International Economy”,Amsterdam and New York,North-Holland,Carnegie-Rochester Series on Public Policy.
[30]
Luis Uzeda and Callum Jones.2013.“Detection Of Anticipated Structural Changes In A Rational Expectations Environment”,Applied Economics Letter, 20(14):1322～1327.
[31]
Muth J. F..1961.“Rational Expectations And The Theory Of Price Movements”,Econometrica,29(3):315～335.
[32]
Rddy B. Sudhakara.2018.“Economic Dynamics and Technology Diffusion in Indian Power Sector”,Energy Policy,120(6):425～435.
[33]
Szolgayova J. and Fuss S. Obersteiner M..2008.“Assessing The Effects of CO2 Price Caps On Electricity Investments—A Real Options Analysis”,Energy Policy, 36(10):3974～3981.
[34]
Tong Dan,Zhang Qiang,Davis J. Steven,Liu Fie,Zheng Bo,Geng Guannan,Xue Tao,Li Meng,Hong Chaopeng,Lu Zifeng,Streets G.David,Guan Dabo and He Kebin.2018.“Targeted Emission Reductions From Global Super-Polluting Power Plant Units”,Nature Sustainability,1(1):59～68.
[35]
Wallis F. Kenneth.1980.“Econometric Implications Of the Rational Expectations Hypothesis”,Econometrica, 48(1):329～354.
[36]
Wang B., Liu L., Huang G. H.,Li W. and Xie L. Y..2018.“Effects Of Carbon And Environmental Tax On Power Mix Planning-A Case Study Of Hebei Province, China”,Energy, 143(1):645～657.
[37]
Zhang YueJun, Peng Yulu, Ma Chaoqun and Shen Bo,2017,“Can environmental innovation facilitate carbon emissions reduction？ Evidence from China”, Energy Policy, 2017,100(1):18～28.
[38]
Zhang Xu, Qi Tianyu, Ou Xunmin and Zhang Xiliang.2015.“Research on the Energy and Economic Impacts of Multi-region Linked Emissions Trading System”,Energy Procedia, 75(8):2495～2503.
[39]
Zhao Xiaoli ,Zhao Yue , Zeng Saixing and Zhang Sufang.2015.“Corporate Behavior And Competitiveness: Impact Of Environmental Regulation On Chinese Firms.”Journal of Cleaner Production,86(1):311～322.
