Three essays on carbon and environmental markets in the EU and China

This thesis studies firm trading behaviour in the European Union (EU) carbon marketand investment decision-making in China’s electricity industry in the context of policiesaddressing local and global air pollution. The first two papers derive the lessons learntfrom the EU carbon market for policy-makers (such as the Chinese government)introducing such instruments, and the last paper assesses the effects of such policies oninvestment decisions in the electricity sector.The first paper aims to provide empirical evidence for beyond compliance tradingbehaviour in the EU carbon market by investigating companies’ characteristics andrelated volumes. To explore decision-making at the parent company level, amicroeconomic choice model is applied to a unique dataset that contains information onthe EU carbon registry and firm-specific characteristics. The results suggest that EasternEuropean state-owned firms are less likely to trade allowances beyond their complianceneeds, and that their volumes are significantly lower. However, Western European stateownedfirms are more active in terms of beyond compliance trading and relatedvolumes.The second paper uses a bottom-up approach to analyse value-added tax (VAT) fraudacross all countries involved in the EU Emissions Trading Scheme (ETS) in phase 2.The results show that the VAT losses for all EU countries are estimated at €3,341million. The extent of the losses varies for each country, with France having the highestfraudulent volume. The results also reveal that large-scale VAT fraud significantlydecreased after 2010, which was the result of anti-fraud policies. In addition, VAT fraudwas strongly connected with overseas tax havens, and the Danish registry became aloophole, which resulted in the prevalence of VAT fraud throughout the EU carbonmarket.The third paper simulates different single and combined policy scenarios to evaluate theeffects of air pollutant control and carbon mitigation policies on China’s futureelectricity generation portfolio investment. By using a portfolio assessment model thatincorporates key uncertainties, the results show that China can achieve significantreductions for both greenhouse gas and local air pollutant emissions through acombination of climate change and air pollution control policies. In addition, the paperidentifies co-benefits from the perspectives of both air pollutant control and carbonmitigation, and it discusses the net generation costs of different policy scenarios in theprocess of policy evaluation