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A Hybrid Simulation Study of the Herding Behavior Effects in the China National Carbon Market

Mitigating climate change is a global consensus. China is aiming to have carbon emissions peak before 2030 and achieve carbon neutrality before 2060. The China national carbon market is one of the key measures to achieve this ambitious “30•60” target. Compliance enterprises, financial institutions, and individual investors are allowed to participate in the national carbon market and the complex trading interactions among these heterogeneous participants will make the market dynamics difficult to predict and analyze, bringing challenges to market design and regulations. Guided by the framework of cyber-physical-social system in energy (CPSSE), this paper constructs a hybrid simulation environment based on the Dynamic Simulation platform for Macro-Energy Systems (DSMES), in order to study the herding behavior effects on carbon market under different scenario settings. The behavior models of different carbon traders such as compliance enterprises, offset developers and financial institutions are analyzed and constructed. Then, the herding behavior effects are studied under different market scenario settings such as the supply of carbon emission allowance (CEA) and carbon offset credits (COC). Finally, key insights are discussed based on multi-scenario case studies, which provide decision support for market design and regulation.