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Energy Science Engineering - 2022 - Yun - Forecasting Carbon Dioxide Emission Price Using A Novel Mode Decomposition
Energy Science Engineering - 2022 - Yun - Forecasting Carbon Dioxide Emission Price Using A Novel Mode Decomposition
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Received: 21 April 2022 | Revised: 21 August 2022 | Accepted: 1 September 2022
DOI: 10.1002/ese3.1304
ORIGINAL ARTICLE
1
School of Economics and Management,
Hefei University, Hefei, China Abstract
2
School of Economics, North Minzu Global carbon dioxide emissions have become a great threat to economic
University, Yinchuan, China sustainability and human health. The carbon market is recognized as the most
3
School of Economics and Management,
promising mean to curb carbon emissions, furthermore, carbon price forecasting
Anhui Agricultural University, Hefei,
China will promote the role of the carbon market in emissions reduction and achieve
reduction targets at lower economic costs for emission entities. However, there are
Correspondence
still some technical problems in carbon price prediction, such as mode mixing and
Po Yun, Hefei University, No. 99 Jinxiu
Rd, Economic and Technological larger reconstruction error for the traditional empirical mode decomposition‐type
Development Zone, Hefei 230601, China. models. Therefore, the innovation of this paper is constructing a novel carbon
Email: yunpo2010@mail.hfut.edu.cn
price prediction model of complete ensemble empirical mode decomposition with
Funding information adaptive noise (CEEMDAN)‐long short‐term memory (LSTM), that combines the
Ministry of Education of the People's advantages of CEEMDAN in decomposing the multiscale time‐frequency carbon
Republic of China,
price signals and the LSTM model in fitting the financial signals. The results show
Grant/Award Number: 21YJC790152;
Social Sciences innovation and the proposed CEEMDAN‐LSTM model has significant accuracy in predicting the
development project of Anhui Province of complex carbon price signals. The prediction error and expectation indicators of
China, Grant/Award Number:
root mean square error, mean absolute error, mean absolute percentage error, and
2021CX028; University Humanities and
Social Sciences Research Project of Anhui direction accuracy are 0.638342, 0.448695, 0.015666, and 0.687631, respectively,
Province of China, which is better than other benchmark models. Further evidence convince that the
Grant/Award Number: SK2021A0574
short‐term forecasting performance is superior to the long‐term and medium‐term
performance. That evidence concludes that the proposed model is a reliable
method to reveal the carbon price‐driving mechanism from the point of multiscale
time‐frequency characteristics. Particularly, short‐term forecasting is more
accurate and can provide a valuable technical reference for reduction entities
and green financial companies to judge the market situation and formulate
quantitative transactions.
KEYWORDS
CEEMDAN, forecasting carbon dioxide emission price, LSTM, machine learning, mode
decomposition
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided
the original work is properly cited.
© 2022 The Authors. Energy Science & Engineering published by Society of Chemical Industry and John Wiley & Sons Ltd.
AR‐GARCH model can capture the carbon market model based on variational mode decomposition (VMD).
uncertainty and predict the carbon price volatility,13 The results indicated that the integrated models of VMD‐
particularly, the model can reveal the nonlinear impact GARCH and VMD‐LSTM can effectively predict the
of policy regulation on carbon price.14 The GARCH European carbon price in the rising stage, and also emerging
model with the normal distribution is difficult to describe China's carbon market.31–33
the abnormal volatility feature of the carbon market, For solving the mode mixing problem in the EMD
Sanin et al.15 found that the ARMAX‐GARCH model process, Li et al.34 used the model of CEEMD and VMD to
with Gaussian time‐varying jumping process can explain decompose the original carbon price signals, the conclusion
the changes of the European carbon price. Conducted the proposed that the second mode decomposition technology
DCC‐GARCH and ARCH model to study the volatility has obvious advantages in carbon price prediction. To
spillover between fossil energy and carbon market, it is overcome the point prediction defects of traditional EMD
found that the returns of coal, crude oil, and natural gas techniques, Ji et al.35 constructed a three‐stage vertical
have a significant shock on the short‐term European carbon price interval prediction model based on the
carbon price.16–18 Carbon market has price fractal improved complete EEMD technology, the research con-
characteristics, the fractional Brownian motion model vinced significant prediction reliability of the proposed
with the volatility parameter determined by the GARCH model in the European carbon market. In addition, the
model showed a stable prediction performance in model of interval discrete wavelet transform, interval
European carbon option price.19,20 empirical mode decomposition, and interval VMD are also
integrated into a mixed model for predicting carbon price
and showed predicting superiority and robustness.36,37
2.2 | Hybrid mode decomposition model
for forecasting carbon price
2.3 | Comment on previous literature
The EMD technology can decompose the carbon price
signals into various mode components, and reveal the Those pieces of literature provide a valuable reference for
carbon price‐driving mechanism from the perspective of this study, but there are still the following two deficien-
different time scales.21,22 Combined the advantages of EMD cies: first, the GARCH cluster models usually request
and least squares support vector machine (LSSVM), Zhu strict tail distribution assumption, which makes the
et al.23 proposed a mixed carbon price forecasting model prediction performance of GARCH cluster models
EMD‐LSSVM, the results showed that the proposed model questionable. More importantly, the time scale heteroge-
has significant prediction accuracy and stability in the neity and time‐frequency characteristics of the carbon
European carbon market. Integrated the factor analysis price have been ignored. Second, the traditional EMD
technology into the EMD‐LSSVM model, Sun and Huang24 technology is prone to the problems of mode mixing and
concluded that it is necessary to detect the relationship matrix alignment obstacles, that increase the
between different mode signals so as to improve the reconstruction error and residual noise.
prediction accuracy. Decomposed the carbon price signals Therefore, to overcome the theoretical defects of the
into different intrinsic mode functions (IMFs), fitted those above models, this paper conducts the complete ensemble
IMF signals by GARCH and LSSVM model, and further empirical mode decomposition with adaptive noise (CEEM-
conducted the particle swarm optimization, genetic algo- DAN) to realize the multiscale decomposition of the original
rithm (GA), spike neural network (SNN) and deep neural carbon price signals. The model has two significant
network (DNN) algorithm to optimize the hybrid model, the advantages compared with other EMD‐type models: one is
results put that the carbon price prediction performance of the CEEMDAN model can reduce the mode reconstruction
EMD‐ARMA‐LSSVM, EMD‐LSSVM, EMD‐GA‐BP, EEMD‐ error with a small average number of iterations, can solve
SNN, and EMD‐DNN‐BP are significantly better than other the mode mixing problem, and improve the noise reduction
single models.25–27 Employed the improved empirical mode performance. The other one is that it can depict the
decomposition technology (MEEMD), Yang et al.28 used the multiscale time‐frequency characteristics of carbon price
improved whale optimization algorithm (IWOA) to opti- series, and reveal the driving mechanism of carbon
mize the long short‐term memory (LSTM) model, the premium from different time frequencies point. For the
research suggested that the hybrid model of MEEMD‐ latest study, Zhou et al.38 constructed the CEEMDAN‐LSTM
IWOA‐LSTM has stability and robustness in predicting the model to predict the Guangzhou carbon price, and a novel
price of emerging carbon markets such as Beijing, Fujian, VMD‐LSTM model is suggested for improving prediction
and Shanghai. Followed the same idea, Huang et al.29 and accuracy. Although the CEEMDAN and VMD model can
Li et al.30 constructed an integrated carbon price prediction solve the mode mixing problem, and the LSTM model has
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4 | YUN ET AL.
good prediction performance, the robustness verification of Based on the above analysis, to overcome the
the LSTM model for forecasting carbon price in different problems of mode mixing and matrix alignment, this
time scales cannot be neglected. Actually, due to its special paper uses the CEEMDAN method carried out by Torres
gate structure, the prediction performance of the LSTM et al.40 to decompose the nonlinear and nonstationary
model has a certain correlation with the time scale of the carbon price signals. Different from the noise addition
prediction period. Consequentially, revealing the carbon process of the EEMD model proposed by Wu and Huang
price prediction robustness of the LSTM model in different and CEEMD model put by Yeh et al.,41 the core of the
time periods is a non‐negligible task in this paper. CEEMDAN method is adding a new white noise into the
The innovation of this paper is constructing a new residual after the first‐order IMF is calculated, then a
mode decomposition machine learning CEEMDAN‐ new IMF component is obtained. In particular, the white
LSTM model for predicting the nonlinear and nonsta- noise added into the CEEMDAN decomposition process
tionary carbon price, so as to provide new evidence is the IMF component obtained by EMD decomposition.
explanation for the driving process of carbon premium. The added noise is reduced step by step, and the residual
Furthermore, this paper also tests the prediction stability noise in the mode component is less, so the
of the proposed CEEMDAN‐LSTM model in different reconstruction error can finally be reduced. The flow-
prediction periods to support a more robust performance. chart of the CEEMDAN model for decomposing the
There are two basic logic steps of the proposed model, carbon price signals can be shown in Figure 1. The
on the one hand, based on the strengths of CEEMDAN, algorithm steps of the CEEMDAN model are as follows:
the proposed model decomposes the original carbon Step 1: Add the positive and negative pairs of white
price signals into several modes, and reveals the multi- noise to the original carbon price x(t), then get a new
scale time‐frequency characteristics of carbon price; on signal sequence: x (t ) + (−1)qa0 ni (t ); continue perform
the other hand, the LSTM network with the advantage of N times EMD decomposition on the new sequence to get
time series fitting is used to conduct the multistep the first‐order component IMF1i (t ):
prediction of the multiscale mode information, then the
final prediction value can be obtained after summarizing x (t ) + (−1)qa0 ni (t ) = IMF1i (t ) + r1i (t ), (1)
the multiscale mode prediction results.
where ni (t ) represents the added noise after the ith
decomposition (i = 1, 2, …, n); a0 denotes the noise value,
3 | METHOD OL OGY and q = 1 or q = 2 is used to ensure pairwise noise
addition; r1i (t ) means the first residual after the
3.1 | CEEMDAN model decomposition; the final first‐order component can be
obtained by taking the average of IMF1i (t ):
IMF1i (t ) = x (t ) − r1i (t ).
The CEEMDAN model is a special form of mode
decomposition technology based on EMD. It is a model 1 N 1 N
E (IMF1 (t )) =
innovation derived from the improvement of EMD‐type N i =1 N i =1
models. Actually, the EMD method is an effective adaptive (2)
data processing method, that can decompose the price
signals with multiscale time‐frequency characteristics.21 The Compare with Formulae (1) and (2), it can be seen
main contribution of the EMD model is to decompose the that after calculating the component mean, the positive
complex time series into several IMFs and a residual and negative pairs of white noise can offset each other,
sequence. The IMFs represent the local signals with time‐ which can optimize the denoising performance of the
frequency characteristic at different time scales, that is used E (IMF1i (t )) sequence.
to reveal the spectral volatility of the price signals. While the Step 2: Calculate the first‐order residual of the final
residual indicates the long‐term market trend. However, the component r1 (t ):
r1 (t ).
biggest defect of the EMD model is the mode mixing
problem during the decomposition process when the price 1 N i
r1 (t ) = x (t ) − E (IMF1 (t )) = (3)
signals do not the complete white noise process, or there are N i =1
abnormal events in the signals. Although the EEMD
technology proposed by Wu and Huang can reduce the Continue to add the IMFs with positive and negative
signal's noise, the decomposition process of EEMD may lead white noise to the residual series r1 (t ) , and construct a
to mode components cannot be orthogonal, and matrix new signal sequence r1 (t ) + (−1)qa1 E1 (ni (t )). Then,
alignment problems due to the difference of the added‐noise decompose the obtained new series n times to obtain
signals.39 the second‐order component: IMFi2 (t ).
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YUN ET AL. | 5
( )
r1 (t ) + (−1)qa1 E1 (ni (t )) = E IMF2i (t ) + r2i (t ). (4) Step 3: Repeat the process of Steps 1 and 2 to acquire
the k + 1 order component IMFik (t ):
Calculate the mean of component sequence
IMFi2 (t ) to obtain the final second‐order component rk (t ) + (−1)qak Ek (ni (t )) = IMF ik +1 (t ) + rKi +1 (t ). (7)
E (IMF2 (t )) :
IMFik +1 (t ) = rk (t )
N i =1 N i =1 N
(5) 1
E (IMFk +1 (t )) =
rki +1 (t ).
N i =1
According to the same idea, the second‐order residual N (8)
1
of the final component r2 (t ) can be calculated: −
N i =1
r2 (t ).
1 N i Similarly, the final K + 1 order component residual of
r2 (t ) = r1 (t ) − E (IMF2 (t )) = (6)
N i =1 r2 (t ) is expressed as:
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6 | YUN ET AL.
rk +1 (t ). (9)
1 N i The forget gate is used to filter the input carbon price
rk +1 (t ) = rk (t ) − E (IMFk +1 (t )) =
N i =1 IFM signals and previously hidden layer characteristics,
the forget gate output is shown as:
Step 4: Repeat the Step 3, when the extreme number
of the remaining components is less than 2, the K IMF ft = σ (Wf × [ht −1, x t ] + bf ). (11)
component can be acquired from the whole CEEMDAN
model. The original signal can be showed as: The input gate can saves the filtered carbon price
E (IMFk (t )) + r (t ).
signals, and determines the output of the input gate data:
k
x (t ) = (10)
it = σ (Wi × [ht −1, x t ] + bi ), (12)
k =1
Ct = tan h (WC × [ht −1, x t ] + bC ), (13)
In the above steps, the CEEMDAN algorithm
continues to add new adaptive noise to the residual Ct = ft × Ct −1 + it × Ct . (14)
series after EMD decomposition, reduces the residual
noise of the mode component, and serves to solve the The output gate determines the memorized charac-
mode mixing problem to the maximum extent. teristic in the hidden cell unit and obtains the network
output by the activation function:
The carbon price series have nonlinear and nonstation- ht = ot × tan h (Ct ). (16)
ary characteristics, especially the time‐frequency IMFs
have the attribute of time scale heterogeneity. Therefore, Specifically, the above weight functions need to be
this paper conducts the LSTM model, which has the calculated separately during the learning process, that is
advantages of financial data fitting to capture the time‐ Wf = Wfx + Wfh, Wi = Wix + Wih , Wc = Wcx + Wch , Wo =
frequency characteristic and fit the nonlinear signals. As Wox + Woh . it and Ct mean the information update vector
an improved style of the traditional recurrent neural of the input gate, Ct denotes the update vector of the
network, the special cell structure of the LSTM model is output gate. ht means the network output of the LSTM
the key to fitting the complex financial time series.42 model. bf , bi , bC , and bo represent the bias information. σ
Where, the long memory ability of cell structure is is the sigmoid activation function.
mainly decided by the designed gate structure, namely,
forget gate, input gate, and output gate. The designation
of those gate structures is used to update the carbon 3.3 | The proposed CEEMDAN‐LSTM
pricing factors. The training process of each gate model
structure can be described as follows:
First, the forget gate is used to decide the forgotten Based on the nonlinear, nonstationary, and time‐frequency
information and filter information from the previous heterogeneity characteristics of the carbon price series, this
hidden layer network, and employs the sigmoid function paper constructs a novel mode decomposition machine
to map the current input xt and previous hidden union Ct‐1 learning hybrid model of CEEMDAN‐LSTM to predict the
into the value between 0 and 1. Then, the forgotten output carbon price. The proposed model combines the strengths of
of ft is obtained. Second, the input gate determines the the CEEMDAN and LSTM model, that is, the CEEMDAN
information be saved and updated in the current memory model is used to fit the nonlinear and nonstationary carbon
union Ct. That is, the saved information in a current layer price signals, and decompose the original carbon price into
can be calculated by the sigmoid function by the original different IMF modes. However, the LSTM model is designed
information xt and previous hidden layer memory Ht‐1. to improve the forecasting ability of IMF information
Thirdly, the output gate is designed to acquire the filtered obtained by the CEEMDAN model.
information of the current cell, the network output of the The empirical processing follows the idea of
current layer ht can be finally calculated by the tanh “decomposition–prediction–integration.” First, during
function. Furthermore, the multilayer LSTM model is a the decomposition stage, the CEEMDAN model is used
network stack of a single LSTM network. Generally, the to decompose the original carbon price to obtain the
multi‐layer LSTM model can extract the financial data mode signal IMFs and a residual. These mode signals
signals, and improve the performance of carbon price reflect the time‐frequency volatility of carbon prices.
prediction more than a single‐layer network. Secondly, in the prediction stage, the LSTM model is
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YUN ET AL. | 7
y ,
conducted to fit the nonlinear trend of the mode signals 1 T yi − yˆi
and residual, respectively, so as to reveal the prediction MAPE = (19)
T i =1 i
performance of each time scale signal. Finally, in the
ai ,
integration stage, the final predicting value of the
proposed model can be calculated by summing the above 1 T −1
DA =
modes predicting results and residual prediction value. T i =1
Furthermore, to prove the prediction superiority of
the proposed model, this paper also compares the where
1, if( yi +1 − yi ) × ( yˆi +1 − yi ) > 0
ai =
prediction performance with other benchmark models,
0,
and finally supports convincing evidence by the robust-
, (20)
ness test for different predicting periods. The logic otherwise
framework of the proposed CEEMDAN‐LSTM model is
designed as shown in Figure 2. where Y = { y1, y2 , …, yT } represents the carbon price
series; while Yˆ = { yˆ1 , yˆ2 , …, yˆT } indicates the prediction
price. T is a time series variable.
3.4 | Evaluation criteria
This article uses the root mean square error (RMSE), mean
absolute error (MAE), and mean absolute percentage error 4 | EMPIRICAL ANALYSIS AND
(MAPE) as error indicators to evaluate the deviation between D I S C U S S IO N
the predicted price and the real price. The smaller the error
value, the deviation error from the predicted value to the real 4.1 | Data and statistical analysis
one is lower, which denotes the model predicting perform-
ance is perfect. Furthermore, we also use the direction This paper chooses the settlement price of continuous
accuracy (DA) indicator to test the consistency probability future contracts of European Union Allowance (EUA)
between the investor's prediction direction and the real products traded in the European Union Emission
market trend. The greater the DA value, the predicted Trading Scheme to measure the market price of carbon
performance is more consistent with the real price trend and emissions. The reason is that, as the largest carbon
investors' expectation. The evaluation criteria are as follows: emissions trading market in the world, the EUA's future
Ti =1 ( yi − yˆi )2
products have significant characteristics of larger trading
volume and stronger liquidity, that can better reflect the
RMSE = , (17) market trading price of global carbon dioxide compared
T
with other certification emission reduction (CER) prod-
yi − yˆi ,
ucts and EUA spot products.43,44 The data samples range
1 T
MAE = (18) from June 2, 2009 to November 23, 2021 excluding
T i =1
discontinuous data and holiday nontransaction data, a
F I G U R E 2 The logic framework of the proposed complete ensemble empirical mode decomposition with adaptive noise (CEEMDAN)‐
long short‐term memory (LSTM) model.
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8 | YUN ET AL.
total of 3195 data are obtained. All data are from the The above results conclude that the original carbon price
European energy exchange. signals have the characteristics of spike and thick tail, non‐
Based on the statistical results shown in Table 1, normal, nonstationary and nonlinear. So, we believe it is
we find that: firstly, the average carbon price is 14.65, suitable to use the CEEMDAN model to perform time‐
the skewness is 1.999 and the kurtosis is 7.152, frequency decomposition of the price signals.
indicating that the carbon price has an obvious spike
and thick tail distribution. A positive skewness
suggests that there is an “outlier” phenomenon on 4.2 | Mode characteristic analysis of
the right side of the carbon price distribution. While a carbon price signals
high kurtosis means that the big variance is caused by
the extreme value of low frequency greater or less than This article conducts the CEEMDAN model to decompose
the price data. Furthermore, the significance of JB the original carbon price signals, and then 11 modes and 1
statistics shows the carbon price does not obey the residual represented different time scale information are
normal distribution, and LB statistics denotes the obtained. Figure 3 shows the volatility trend of each mode
carbon price has obvious long memory characteristics. component. As we can see from Figure 3, with the signals
Second, as for the stability test, the ADF critical value change from IMF1 to IMF11, the frequency change from
is 3.618, which is significant at the 1% level, the result strong to weak, the market signals impact on carbon price is
indicates the original carbon price has the character- becoming more and more stable, as a result, the fluctuation
istic of nonstationary. Third, as for the nonlinear test, range of each mode is getting smaller and smaller.
when the embedding dimensions are 5 and 10, the According to the frequency period of each mode showed
critical value are 136.64 and 299.94, which are in Table 2, we conclude that: firstly, the signal period of
significant at the 1% level, and the results prove the IMF1, IMF2, IMF3, IMF4, IMF5, and IMF6 are basically
nonlinear characteristic of the carbon price signals. within 2 months, the average period is relatively short, and
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YUN ET AL. | 9
TABLE 2 Intrinsic mode function (IMF) mode period of the carbon price signals.
Mode IMF1 IMF2 IMF3 IMF4 IMF5 IMF6 IMF7 IMF8 IMF9 IMF10 IMF11 Resid
Period 3.51 7.24 10.24 18.12 24.32 40.72 67.41 132.41 318.92 531.2 941.2 1831.2
the signal shock is high, indicates that those signals have an To improve the prediction stability, it is necessary to preset
obvious impact on the short term carbon price. For example, and optimize the neural network parameters of the
the short‐term carbon quota supply and demand and other proposed model. As we know, the iterations and neuron
irregular events are important external drivers of short‐term nodes are important training parameters, the iterations
shocks in the carbon price. These explanations are represent the updated times of data training, and the appro-
consistent with the conclusion of Ji et al.45 and Shi et al.46 priate number of iterations can accelerate the convergence
that the supply and demand capacity of carbon quotas and training process of the neural network. Hence, under
affected the short‐term carbon price significantly. Second, the constraint of the definite loss function, the optimal
the signal period of the residual term is the longest, and the iteration is the training times that correspond to the lowest
signal shock frequency is low. The residual means the price objective loss. As a chain network, each hidden layer of
change caused by the market macro factors that mainly LSTM has similar neuron nodes. More neuron nodes can
reflect the long‐term market equilibrium. Thirdly the improve the training and generalization ability of the
remaining modes can be regarded as the medium‐term proposed model, but it may also cost more training time
factors that affect the carbon price signals. Those modes and produce an overfitting phenomenon.47
represent the market response of investors to policy Therefore, referring to the experience of Shen et al.48
adjustment, extreme event impact, and other factors. and Yun et al.,49 this paper uses the step‐by‐step
experimental method to determine the optimal network
parameters, specifically, we calculate the model training
4.3 | Predicting performance analysis of error when the iteration are 50, 100, 200, 300 and the
the proposed CEEMDAN‐LSTM model neuron nodes of the proposed model are 4, 8, 16, 32, 64, and
128 separately. The results conclude that when the iteration
4.3.1 | Parameter optimization number is 200 and the neuron node is 128, the error
indicators of RMSE, MAE, and RMSE are 0.851783,
Based on the model designation mentioned above, we 0.601614, and 0.021578, respectively (as shown in Table 3),
employ the proposed CEEMDAN‐LSTM model to realize that is the minimum value of the whole test sample. So, we
the multistep prediction of the original carbon price signals. use those parameters to predict the carbon price.
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10 | YUN ET AL.
4.3.2 | Predicting results analysis and relative advantages of the proposed model, we
also choose the back propagation (BP) neural network
According to the defined network parameters, we and the gated recurrent unit (GRU) network as the
conduct the CEEMDAN‐LSTM model to perform the comparison models, then construct a cluster of
multi‐step prediction of carbon price mode signals, benchmark models based on other decomposition
the prediction performance can be shown in technologies such as CEEMD, EEMD, and EMD. The
Figure 4. Furthermore, to evaluate the superiority benchmark models designed with the same network
F I G U R E 4 Intrinsic mode function (IMF) prediction performance of the carbon price signals based on complete ensemble empirical
mode decomposition with adaptive noise‐long short‐term memory model.
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YUN ET AL. | 11
parameters, and the research results put in Table 4 0.01731, respectively, the market expected indicator DA is
conclude that: 0.542066. The error indicators RMSE, MAE, and MAPE of
First, compared with other benchmark models, the the CEEMDAN‐BP model are 4.264262, 2.585904, and
prediction performance of the hybrid model with LSTM 0.066193, respectively, the market expected indicator DA is
show high prediction accuracy in both error indicators and 0.542066. According to Figures 5 and 6, we can also clearly
expected indicator. In particular, the prediction superiority observe that the carbon price prediction performance of
of the CEEMDAN‐LSTM model is the best, specifically, the the hybrid models based on CEEMDAN technology has
error values of RMSE, MAE, and MAPE are 0.638342, significant advantages, the deviation between the predicted
0.448695, and 0.015666, respectively. The error is the value and the real one is the smallest, and the dynamic
smallest of all models, the market expectation indicator error is relatively stable. These pieces of evidence argue
DA is 0.687631, which is the largest of all models. These that the CEEMDAN model has obvious strengths in
pieces of evidence reveal that the proposed CEEMDAN‐ carbon price signals decomposition, it can describe the
LSTM model has significant prediction accuracy and multiscale time‐frequency characteristics of carbon price
stability, the model can not only reveal the multiscale more accurately. The result indirectly proves that the
time‐frequency driving mechanism of carbon price signals CEEMDAN model can reduce the carbon price signal
but also has good market potential, it can provide technical noise to the greatest extent, the proposed predicting model
support for investors to take market judgment and predict can provide a valuable reference for investors to judge
market prospects. the market situation and formulate investment strategies.
Second, the hybrid prediction models constructed
based on the CEEMDAN model suggest perfect prediction
accuracy. That is, CEEMDAN‐LSTM, CEEMDAN‐GRU, 4.4 | Robustness test of the CEEMDAN‐
and CEEMDAN‐BP models have the smallest error and the LSTM model
largest market expectation value in various hybrid models.
For example, the error indicators RMSE, MAE, and MAPE The proposed CEEMDAN model can capture the
of the CEEMDAN‐GRU model are 0.650083, 0.472725, and multiscale time‐frequency characteristics of carbon
TABLE 4 Performance of the hybrid model CEEMDAN‐LSTM with the benchmark model for forecasting carbon price.
Model RMSE MAE MAPE DA
Panel A: Hybrid model with LSTM
CEEMDAN‐LSTM 0.638342 0.448695 0.015666 0.687631
CEEMD‐LSTM 1.266437 1.030303 0.040394 0.523061
EEMD‐LSTM 1.189577 1.00258 0.039888 0.479036
EMD‐LSTM 0.70806 0.500016 0.017737 0.683438
Panel B: Hybrid model with GRU
CEEMDAN‐GRU 0.650083 0.472725 0.01731 0.542066
CEEMD‐GRU 4.040523 2.729211 1.026829 0.498403
EEMD‐GRU 1.79979 1.635625 0.025279 0.511182
EMD‐GRU 2.04908 1.95856 0.47847 0.513312
Panel C: Hybrid model with BP
CEEMDAN‐BP 4.264262 2.585904 0.066193 0.542066
CEEMD‐BP 5.530578 3.103943 0.07248 0.495208
EEMD‐BP 6.12618 3.859209 0.098706 0.506922
EMD‐BP 4.774701 3.236702 0.087745 0.543962
Note: Bold indicates the optimal parameter.
Abbreviations: BP, back propagation; CEEMD, complementary ensemble empirical mode decomposition; CEEMDAN, complete ensemble empirical mode
decomposition with adaptive noise; DA, direction accuracy; EEMD, ensemble empirical mode decomposition; EMD, empirical mode decomposition; GRU,
gated recurrent unit; LSTM, long short‐term memory; MAE, mean absolute error; MAPE, mean absolute percentage error; RMSE, root mean square error.
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12 | YUN ET AL.
F I G U R E 5 Carbon price prediction performance of the proposed complete ensemble empirical mode decomposition with adaptive
noise (CEEMDAN)‐long short‐term memory (LSTM) model and its benchmark models. BP, back propagation; CEEMD, complementary
ensemble empirical mode decomposition; EEMD, ensemble empirical mode decomposition; EMD, empirical mode decomposition; GRU,
gated recurrent unit.
price signals, and reveal the special carbon premium prediction periods. Where, the length of the last
driving mechanism. However, the LSTM model has 3 years, 2 years, and 1 year of the carbon price series
significant advantages in dealing with financial time are intercepted into the long‐term, medium‐term, and
series. Therefore, to prove the stability and robustness short‐term, respectively. That is, the last 700, 460, and
of the proposed CEEMDAN‐LSTM model in different 230 trading days of the sample are taken as the testing
time scales, this paper readjusts the time scale of set, and the other samples are regarded as the training
the carbon price series and tests the model's robust- set. The network structure of the test model is
ness in the long‐term, medium‐term, and short‐term consistent with the previous design.
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YUN ET AL. | 13
F I G U R E 6 Dynamic predicting error of proposed complete ensemble empirical mode decomposition with adaptive noise (CEEMDAN)‐
long short‐term memory (LSTM) model and its benchmark models. BP, back propagation; CEEMD, complementary ensemble empirical
mode decomposition; EEMD, ensemble empirical mode decomposition; EMD, empirical mode decomposition; GRU, gated recurrent unit;
MAE, mean absolute error; MAPE, mean absolute percentage error; RMSE, root mean square error.
The empirical results in Table 5 showed that, model is basically consistent with the real carbon
firstly, in terms of the long‐term, medium‐term, and price, the dynamic error deviation is much smaller
short‐term carbon price prediction performance, the than that of other models. This shows that the
CEEMDAN‐LSTM model has a lower error indicators prediction superiority of the proposed model has
value than that of other benchmark models. For reliable robustness on different time scales. The
example, the long‐term prediction error indicators of CEEMDAN has been proved to be an effective
RMSE, MAE, and MAPE are 2.955937, 1.369345, and technology to reduce data decomposition noise and
0.024355, which are significantly lower than other reconstruction error, the LSTM model can also
benchmark models of CEEMDAN‐GRU and nonlinear map the complex modes with time scale
CEEMDAN‐BP. Similarly, the medium and short‐ differences.
term prediction errors are also lower than in other Second, the CEEMDAN‐LSTM model has the
models. Compared with Figures 7–9, it can be found smallest error performance in the short‐term carbon
that the predicted trend of the CEEMDAN‐LSTM price prediction, the dynamic error is also small
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14 | YUN ET AL.
TABLE 5 Predicting performance of the proposed and benchmark models in the long–medium–short term of carbon price series.
Evaluation criteria CEEMDAN‐LSTM CEEMDAN‐GRU CEEMDAN‐BP
Panel A: Long‐term prediction performance (3 years, total 700 trading days)
F I G U R E 7 The long term predicting performance of the proposed complete ensemble empirical mode decomposition with adaptive
noise (CEEMDAN)‐long short‐term memory (LSTM) model and other benchmark models. BP, back propagation; GRU, gated recurrent unit.
F I G U R E 8 The medium term predicting performance of the proposed complete ensemble empirical mode decomposition with adaptive
noise (CEEMDAN)‐long short‐term memory (LSTM) model and other benchmark models. BP, back propagation; GRU, gated recurrent unit.
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YUN ET AL. | 15
F I G U R E 9 The short term predicting performance of the proposed complete ensemble empirical mode decomposition with adaptive
noise (CEEMDAN)‐long short‐term memory (LSTM) model and other benchmark models. BP, back propagation; GRU, gated recurrent unit.
F I G U R E 10 Dynamic root mean square error (RMSE) error of complete ensemble empirical mode decomposition with adaptive noise
(CEEMDAN)‐long short‐term memory (LSTM) and its benchmark models. BP, back propagation; GRU, gated recurrent unit.
compared with other long‐term and medium‐term the reducing of prediction period from the long
prediction performance. That is, the short‐term term to the short period. The reasonable explanation
prediction error values of RMSE, MAE, and MAPE is that the reducing of the prediction period means
are 1.013417, 0.703062, and 0.011943, respectively, the samples used for model training are increasing
which are significantly lower than the long‐term so that the network structure of the proposed model
and medium‐term error values. With the prediction is improved to the greatest extent. Therefore, the
period reducing from the long‐term to the short‐term, out‐of‐sample prediction performance shows strong
the carbon price prediction error of the proposed accuracy and stability. These conclusions are
model decreases, as a result, the prediction accuracy basically similar to Lesort's idea, the better fitting
is gradually improving. As shown in Figures 10 and performance always benefits from the optimized
11, the out‐of‐sample prediction error of the proposed machine learning structure with more training
CEEMDAN‐LSTM model gradually decreases as samples. 50
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16 | YUN ET AL.
F I G U R E 11 Dynamic mean absolute percentage error (MAPE) error of complete ensemble empirical mode decomposition with
adaptive noise (CEEMDAN)‐long short‐term memory (LSTM) and its benchmark models. BP, back propagation; GRU, gated recurrent unit.
5 | CONCLUS ION AN D model can effectively map the nonlinear carbon price.
PROSPECTS Compared with other benchmark models, the prediction
accuracy and stability of the proposed model have been
5.1 | Conclusion convinced. The results show that this model can provide
new evidence for revealing the carbon premium from the
Global carbon dioxide emissions from energy combustion point of multiscale time‐frequency characteristics. The
and industrialization have reached their highest level in results can also provide valuable reference for investors,
2021. The sharp increase in carbon emissions not only weak emissions reduction entities, and carbon market regula-
the emissions reduction effort over the years, but also affect tors to judge the market situation, and formulate
the long‐term sustainability of economic growth and human investment strategies and other market transactions.
health. Therefore, it is of great significance to study the Furthermore, the carbon market price will be more
emissions reduction mechanism of carbon dioxide, espe- efficient with the use of the proposed model and guide
cially exploring the price‐driving mechanism of the carbon the polluting entities to achieve the emission reduction
emission trading market. For existing carbon price studies, goals and sustainable development.
the EMD‐type models have become the mainstream method Second, the carbon price prediction results of the
to decompose carbon price signals into multiscale modes. CEEMDAN‐LSTM model have significant robustness
However, these models have some theoretical defects in and stability. That is, no matter for the long‐term,
practice, such as mode mixing problems and lower noise medium‐term, and short‐term period, the prediction
reduction performance during the data decomposition error of the proposed model is the smallest compared
process. The innovation of this paper is constructing a with other benchmark models, and the prediction
new mode decomposition hybrid carbon price prediction accuracy is higher. Particularly, the short‐term prediction
model CEEMDAN‐LSTM, and testing the prediction performance of the CEEMDAN‐LSTM model is out-
robustness of the proposed model in different time scales standing. That is, with the reducing of the prediction
and prediction periods. Based on the idea of period, the samples used for model training and
“decomposition–prediction–integration,” this model reveals parameter optimization increasing, and the out‐of‐
the driving mechanism of carbon premium from the sample prediction accuracy and stability are improving.
perspective of a multidimensional time scale. The main This conclusion can provide technical reference for
conclusions are summarized as follows: market investors, financial companies, and emissions
First, the CEEMDAN model has advantages in reduction entities to predict the market trend of
describing the multi‐scale time‐frequency characteristics the carbon price, contribute to more valuable
of carbon price signals. The proposed CEEMDAN‐LSTM market decisions.
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YUN ET AL. | 17
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