Abstract:

Understanding the true value of carbon emission rights is the key to building the EmissionsTrading System.A model for estimating the value range of carbon emission rights is proposed based on the idea of biophysical economics， which explains the intrinsic value of carbon emission rights in terms of environment capacity value， thus distinguishing it from the explanation methods that use marginal abatement costs of enterprises， primary market prices or secondary market prices. Although the DICE model （Dynamic Integrated model of Climate and the Economy） partially achieves this goal using the social cost of carbon （SCC）， the complex external transmission chain of “emissions-carbon cycle-climate change-economic loss” made the results sensitive to the discount rate.

A solution is proposed that enables carbon value to be measured by probability. Carbon emission rights are a financial derivative whose value is based on greenhouse gases' environment capacity. Greenhouse gases' environment capacity is produced by carbon sequestration activities. The model first examines the value formation process of environment capacity. As the cheapest and mass-producible carbon sink， forestry carbon sinks are used to assess the cost of environment capacity. The Benítez model is drawn on for measuring the cost of carbon sinks， using a probability distribution to describe all the factors that affect the cost of absorbtion， and a Monte Carlo method is used to perform 10，000 trials on these factors. The final report of the probability distribution of the value of carbon emission rights and the sensitivity analysis of the model is obtained.

A mirror price model is also propased for carbon emission rights. The mirror price is the monetary amount that should be paid per unit of carbon emissions for the production of a country's environment capacity and the monetary loss to the country caused by the international carbon mechanism. The mirror price is a theoretical carbon price consistent with the principle of common but differentiated responsibilities in the Paris Agreement， taking different national circumstances into account. The mirror price can explain the intrinsic drivers of the carbon price.The value of carbon emission rights in China is examined using data on land prices， timber prices， and cedar forests carbon sink. The model can also be applied to value carbon emission rights in other countries.

Key words: atmospheric environment capacity, carbon emission rights value range estimation model, monte Carlo method