@article{Zhang2026, 
author = {Yuanyuan Zhang and Yuyan Weng},
title = {Carbon futures contract design and theoretical pricing in China’s National Carbon Market},
year = {2026},
journal = {Energy and Climate Management},
volume = {2},
number = {1},
pages = {9400029},
keywords = {China’s National Carbon Market, risk management, carbon allowance futures, price discovery, carbon finance policy},
url = {https://www.sciopen.com/article/10.26599/ECM.2026.9400029},
doi = {10.26599/ECM.2026.9400029},
abstract = {The hedging, intertemporal arbitrage, and price discovery functions of carbon futures can help alleviate the problems of insufficient liquidity, limited trading volume, and high price volatility in the spot trading of carbon allowances in China’s National Carbon Market. This paper, considering China’s institutional context, explores the design of carbon futures contracts for the National Carbon Market and investigates their pricing. First, it selects CEAs as the underlying asset for carbon futures, based on their homogeneity, significant price volatility, and considerable market potential. Second, drawing on the characteristics of China’s market system and compliance requirements, it designs the contract specifications for CEAs futures, covering fundamental trading elements, delivery arrangements, and risk control mechanisms, to ensure both tradability and robust risk management. Finally, the paper develops a cost-of-carry pricing model, a no-arbitrage interval pricing model and a policy-adjusted model for CEAs futures based on no-arbitrage theory. The results show that the pricing outcomes of these models are closely aligned. This paper offers valuable insights for regulators and market participants on contract design and risk management in China’s National Carbon Market.}
}