A Decision-Making Model for Custodian Institutions to Participate in a Carbon Market Considering Risk Preferences and Investment Constraints

Given the target of “carbon peaking and carbon neutrality” as well as the establishment and development of the national carbon market in China, the carbon emission allowances (CEA) custody business has developed rapidly. In this context, it is necessary to conduct research on the decision-making model of custodian institutions participating in the carbon market. In this paper, the business mode and process of carbon emission allowance custody are introduced first. Then, a decision-making model is presented for custodian institutions to participate in the carbon market with risk preferences and investment constraints taken into account, using conditional value at risk (CVaR) to quantify the income risk caused by market price uncertainty. Finally, based on actual data of the carbon market in Guangdong province, some case studies are analyzed and compared under different scenarios, and the flexibility and effectiveness of the developed model are demonstrated.