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Received: 21 April 2022 | Revised: 21 August 2022 | Accepted: 1 September 2022

DOI: 10.1002/ese3.1304

ORIGINAL ARTICLE

Forecasting carbon dioxide emission price using a novel

mode decomposition machine learning hybrid model of
CEEMDAN‐LSTM

Po Yun1 | Xiaodi Huang1 | Yaqi Wu2 | Xianzi Yang3

1
School of Economics and Management,
Hefei University, Hefei, China
2
School of Economics, North Minzu
University, Yinchuan, China
3
School of Economics and Management,
Anhui Agricultural University, Hefei,
China
Correspondence
Po Yun, Hefei University, No. 99 Jinxiu
Rd, Economic and Technological
Development Zone, Hefei 230601, China.
Email: yunpo2010@mail.hfut.edu.cn
Funding information
Ministry of Education of the People's
Republic of China,
Grant/Award Number: 21YJC790152;
Social Sciences innovation and
development project of Anhui Province of
China, Grant/Award Number:
2021CX028; University Humanities and
Social Sciences Research Project of Anhui
Province of China,
Grant/Award Number: SK2021A0574
Abstract
Global carbon dioxide emissions have become a great threat to economic
sustainability and human health. The carbon market is recognized as the most
promising mean to curb carbon emissions, furthermore, carbon price forecasting
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
still some technical problems in carbon price prediction, such as mode mixing and
larger reconstruction error for the traditional empirical mode decomposition‐type
models. Therefore, the innovation of this paper is constructing a novel carbon
price prediction model of complete ensemble empirical mode decomposition with
adaptive noise (CEEMDAN)‐long short‐term memory (LSTM), that combines the
advantages of CEEMDAN in decomposing the multiscale time‐frequency carbon
price signals and the LSTM model in fitting the financial signals. The results show
the proposed CEEMDAN‐LSTM model has significant accuracy in predicting the
complex carbon price signals. The prediction error and expectation indicators of
root mean square error, mean absolute error, mean absolute percentage error, and
direction accuracy are 0.638342, 0.448695, 0.015666, and 0.687631, respectively,
which is better than other benchmark models. Further evidence convince that the
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.

Energy Sci. Eng. 2022;1–18. wileyonlinelibrary.com/journal/ese3 | 1


2 |
1 | INTRODUCTION
With the development of the global economy and
industrialization, greenhouse gas emissions have seriously
expanded, especially the sharp increase in carbon dioxide
emissions has become a key incentive that affects the
economy's sustainability and human health. The report of
Global Energy Review: CO2 Emissions in 2021 released by the
International Energy Agency (IEA) in March 2022 showed
that the global emissions rebounded sharply to the highest
level, the carbon emissions from the energy sector reached
36.3 billion tons in 2021, that surpassed the pre‐COVID‐19
levels. With the improvement of epidemic control, economic
recovery has become the primary goal of all countries in
2021, then the energy demand for coal, oil, and electricity is
increased. As a result, global carbon emissions have also
increased rapidly. Based on the report of the IEA, the global
carbon emissions from the coal sector contribute to 1.53
billion tons of carbon emissions. Noteworthy, the significant
increase in carbon emissions in 2021 also offset the decline
in emissions caused by economic recession since the
COVID‐19 pandemic. That is, the increased carbon emis-
sions in 2021 are more than the reduction in 2020, which
showed a serious “rebound phenomenon” of carbon
emissions. Therefore, taking effective measures to curb
global carbon emissions, and realizing the economy and
environment sustainability have become crucial issues that
all countries need to solve.
As a financial innovation, the global carbon emission
trading market has become the most constructive measure
to solve environmental problems.1,2 However, compared
with other capital markets, the construction of the carbon
market is relatively late, and the market efficiency is not
high. The market is easily affected by extreme events and
energy policies, that make the carbon price have significant
characteristics of nonlinear and nonstationary.3–5 Affected
by the continuous rise in energy prices, the data show that
as of March 2022, the European carbon price has
plummeted by more than 35% from 97 euros/ton in early
February. Simultaneously, in the last week of February
2022, the carbon price in the UK market also fell below 100
euros/ton, and the price in other carbon markets such as
Australia and North America also fell to varying degrees.
Recently, concern about the European tension triggered by
the Russian and Ukrainian crisis in March 2022, there has
been a huge price drop and falling investment expectations
in many carbon markets.
Predicting the carbon price and explaining its driving
mechanism are important means to promote the
maturity of the carbon market price mechanism.6,7
Consequently, analyzing the impact of market factors
on the carbon premium will help the market participants
to conduct market judgment, and finally serve the
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YUN ET AL.
emissions reduction of polluting gas. As for the carbon
price forecasting research, the empirical mode decompo-
sition (EMD) technology is the mainstream model to
predict carbon prices. The significant advantage of the
EMD model is to reveal the multiscale time‐frequency
characteristics of carbon price signals and reflect the
driving process of carbon premium. However, the
traditional EMD and adaptive noise ensemble empirical
mode decomposition (EEMD) model is prone to the
problem of mode mixing. Furthermore, the integrated
complementary ensemble empirical mode decomposition
(CEEMD) technology has the defects of larger
reconstruction error and poor decomposition complete-
ness, which still cannot solve the alignment problem of
mode components. Therefore, it is very necessary to
employ a more effective model to solve the above
problems and put a novel hybrid carbon price forecasting
model for improving the accuracy and robustness.
The structure of this paper is designed as follows: the
second part introduces the literature, the third part
constructs the carbon price forecasting hybrid model, the
fourth part is the empirical analysis and the discussion,
and the last part is the conclusion and prospects.
2 | LITERATURE REVIEW
According to the prediction model differences of previous
studies, we divide the existing research into two parts: one is
the volatility statistical technology represented by GARCH
cluster models; the other is the hybrid model represented by
EMD decomposition technology. We also find that, as a
classical volatility modeling technology, the GARCH type
models are early used to reveal the volatility driving
mechanism of the carbon price. Hence, we believe the
above literature classification is reasonable and credible.
2.1 | Volatility statistical technology for
forecasting carbon price
It is found that GARCH cluster models can describe the
carbon price better than implied volatility models and k‐
nearest neighbor models,8 the threshold GARCH models
can effectively reveal the asymmetric characteristics of
the carbon price.9 Research concluded that the GARCH
model based on Markov regime transfer is better than
other GARCH cluster models in forecasting the short‐
term carbon price.10,11 Similarly, Zeitlberger and
Brauneis12 put that the AGARCH and GJR‐GARCH
models subject to the generalized error distribution can
accurately forecast the European carbon future price,
while the out‐of‐sample forecasting is more robust. The

YUN ET AL.
AR‐GARCH model can capture the carbon market
uncertainty and predict the carbon price volatility,13
particularly, the model can reveal the nonlinear impact
of policy regulation on carbon price.14 The GARCH
model with the normal distribution is difficult to describe
the abnormal volatility feature of the carbon market,
Sanin et al.15 found that the ARMAX‐GARCH model
with Gaussian time‐varying jumping process can explain
the changes of the European carbon price. Conducted the
DCC‐GARCH and ARCH model to study the volatility
spillover between fossil energy and carbon market, it is
found that the returns of coal, crude oil, and natural gas
have a significant shock on the short‐term European
carbon price.16–18 Carbon market has price fractal
characteristics, the fractional Brownian motion model
with the volatility parameter determined by the GARCH
model showed a stable prediction performance in
European carbon option price.19,20
2.2 | Hybrid mode decomposition model
for forecasting carbon price
The EMD technology can decompose the carbon price
signals into various mode components, and reveal the
carbon price‐driving mechanism from the perspective of
different time scales.21,22 Combined the advantages of EMD
and least squares support vector machine (LSSVM), Zhu
et al.23 proposed a mixed carbon price forecasting model
EMD‐LSSVM, the results showed that the proposed model
has significant prediction accuracy and stability in the
European carbon market. Integrated the factor analysis
technology into the EMD‐LSSVM model, Sun and Huang24
concluded that it is necessary to detect the relationship
between different mode signals so as to improve the
prediction accuracy. Decomposed the carbon price signals
into different intrinsic mode functions (IMFs), fitted those
IMF signals by GARCH and LSSVM model, and further
conducted the particle swarm optimization, genetic algo-
rithm (GA), spike neural network (SNN) and deep neural
network (DNN) algorithm to optimize the hybrid model, the
results put that the carbon price prediction performance of
EMD‐ARMA‐LSSVM, EMD‐LSSVM, EMD‐GA‐BP, EEMD‐
SNN, and EMD‐DNN‐BP are significantly better than other
single models.25–27 Employed the improved empirical mode
decomposition technology (MEEMD), Yang et al.28 used the
improved whale optimization algorithm (IWOA) to opti-
mize the long short‐term memory (LSTM) model, the
research suggested that the hybrid model of MEEMD‐
IWOA‐LSTM has stability and robustness in predicting the
price of emerging carbon markets such as Beijing, Fujian,
and Shanghai. Followed the same idea, Huang et al.29 and
Li et al.30 constructed an integrated carbon price prediction
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| 3
model based on variational mode decomposition (VMD).
The results indicated that the integrated models of VMD‐
GARCH and VMD‐LSTM can effectively predict the
European carbon price in the rising stage, and also emerging
China's carbon market.31–33
For solving the mode mixing problem in the EMD
process, Li et al.34 used the model of CEEMD and VMD to
decompose the original carbon price signals, the conclusion
proposed that the second mode decomposition technology
has obvious advantages in carbon price prediction. To
overcome the point prediction defects of traditional EMD
techniques, Ji et al.35 constructed a three‐stage vertical
carbon price interval prediction model based on the
improved complete EEMD technology, the research con-
vinced significant prediction reliability of the proposed
model in the European carbon market. In addition, the
model of interval discrete wavelet transform, interval
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
2.3 | Comment on previous literature
Those pieces of literature provide a valuable reference for
this study, but there are still the following two deficien-
cies: first, the GARCH cluster models usually request
strict tail distribution assumption, which makes the
prediction performance of GARCH cluster models
questionable. More importantly, the time scale heteroge-
neity and time‐frequency characteristics of the carbon
price have been ignored. Second, the traditional EMD
technology is prone to the problems of mode mixing and
matrix alignment obstacles, that increase the
reconstruction error and residual noise.
Therefore, to overcome the theoretical defects of the
above models, this paper conducts the complete ensemble
empirical mode decomposition with adaptive noise (CEEM-
DAN) to realize the multiscale decomposition of the original
carbon price signals. The model has two significant
advantages compared with other EMD‐type models: one is
the CEEMDAN model can reduce the mode reconstruction
error with a small average number of iterations, can solve
the mode mixing problem, and improve the noise reduction
performance. The other one is that it can depict the
multiscale time‐frequency characteristics of carbon price
series, and reveal the driving mechanism of carbon
premium from different time frequencies point. For the
latest study, Zhou et al.38 constructed the CEEMDAN‐LSTM
model to predict the Guangzhou carbon price, and a novel
VMD‐LSTM model is suggested for improving prediction
accuracy. Although the CEEMDAN and VMD model can
solve the mode mixing problem, and the LSTM model has

4 |
good prediction performance, the robustness verification of
the LSTM model for forecasting carbon price in different
time scales cannot be neglected. Actually, due to its special
gate structure, the prediction performance of the LSTM
model has a certain correlation with the time scale of the
prediction period. Consequentially, revealing the carbon
price prediction robustness of the LSTM model in different
time periods is a non‐negligible task in this paper.
The innovation of this paper is constructing a new
mode decomposition machine learning CEEMDAN‐
LSTM model for predicting the nonlinear and nonsta-
tionary carbon price, so as to provide new evidence
explanation for the driving process of carbon premium.
Furthermore, this paper also tests the prediction stability
of the proposed CEEMDAN‐LSTM model in different
prediction periods to support a more robust performance.
There are two basic logic steps of the proposed model,
on the one hand, based on the strengths of CEEMDAN,
the proposed model decomposes the original carbon
price signals into several modes, and reveals the multi-
scale time‐frequency characteristics of carbon price; on
the other hand, the LSTM network with the advantage of
time series fitting is used to conduct the multistep
prediction of the multiscale mode information, then the
final prediction value can be obtained after summarizing
the multiscale mode prediction results.
3 | METHOD OL OGY
3.1 | CEEMDAN model
The CEEMDAN model is a special form of mode
decomposition technology based on EMD. It is a model
innovation derived from the improvement of EMD‐type
models. Actually, the EMD method is an effective adaptive
data processing method, that can decompose the price
signals with multiscale time‐frequency characteristics.21 The
main contribution of the EMD model is to decompose the
complex time series into several IMFs and a residual
sequence. The IMFs represent the local signals with time‐
frequency characteristic at different time scales, that is used
to reveal the spectral volatility of the price signals. While the
residual indicates the long‐term market trend. However, the
biggest defect of the EMD model is the mode mixing
problem during the decomposition process when the price
signals do not the complete white noise process, or there are
abnormal events in the signals. Although the EEMD
technology proposed by Wu and Huang can reduce the
signal's noise, the decomposition process of EEMD may lead
to mode components cannot be orthogonal, and matrix
alignment problems due to the difference of the added‐noise
signals.39
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YUN ET AL.
Based on the above analysis, to overcome the
problems of mode mixing and matrix alignment, this
paper uses the CEEMDAN method carried out by Torres
et al.40 to decompose the nonlinear and nonstationary
carbon price signals. Different from the noise addition
process of the EEMD model proposed by Wu and Huang
and CEEMD model put by Yeh et al.,41 the core of the
CEEMDAN method is adding a new white noise into the
residual after the first‐order IMF is calculated, then a
new IMF component is obtained. In particular, the white
noise added into the CEEMDAN decomposition process
is the IMF component obtained by EMD decomposition.
The added noise is reduced step by step, and the residual
noise in the mode component is less, so the
reconstruction error can finally be reduced. The flow-
chart of the CEEMDAN model for decomposing the
carbon price signals can be shown in Figure 1. The
algorithm steps of the CEEMDAN model are as follows:
Step 1: Add the positive and negative pairs of white
noise to the original carbon price x(t), then get a new
signal sequence: x (t ) + (−1)qa0 ni (t ); continue perform
N times EMD decomposition on the new sequence to get
the first‐order component IMF1i (t ):
x (t ) + (−1)qa0 ni (t ) = IMF1i (t ) + r1i (t ), (1)
where ni (t ) represents the added noise after the ith
decomposition (i = 1, 2, …, n); a0 denotes the noise value,
and q = 1 or q = 2 is used to ensure pairwise noise
addition; r1i (t ) means the first residual after the
decomposition; the final first‐order component can be
obtained by taking the average of IMF1i (t ):
 IMF1i (t ) = x (t ) −  r1i (t ).
1 N 1 N
E (IMF1 (t )) =
N i =1 N i =1
(2)
Compare with Formulae (1) and (2), it can be seen
that after calculating the component mean, the positive
and negative pairs of white noise can offset each other,
which can optimize the denoising performance of the
E (IMF1i (t )) sequence.
Step 2: Calculate the first‐order residual of the final
component r1 (t ):
 r1 (t ).
1 N i
r1 (t ) = x (t ) − E (IMF1 (t )) = (3)
N i =1
Continue to add the IMFs with positive and negative
white noise to the residual series r1 (t ) , and construct a
new signal sequence r1 (t ) + (−1)qa1 E1 (ni (t )). Then,
decompose the obtained new series n times to obtain
the second‐order component: IMFi2 (t ).
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YUN ET AL. | 5

F I G U R E 1 The flowchart of complete

ensemble empirical mode decomposition
(EMD) with adaptive noise model for
decomposing the carbon price signals.

( )
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 )) :

E (IMF2 (t )) =  IMFi2 (t ) = r1 (t ) −  r2i (t ).

And then the final K + 1 order IMF component of
1 N 1 N E (IMFK+1 (t )) is expressed as:

 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:

6 |
 rk +1 (t ). (9)
1 N i
rk +1 (t ) = rk (t ) − E (IMFk +1 (t )) =
N i =1
Step 4: Repeat the Step 3, when the extreme number
of the remaining components is less than 2, the K IMF
component can be acquired from the whole CEEMDAN
model. The original signal can be showed as:
 E (IMFk (t )) + r (t ).
k
x (t ) =
k =1
In the above steps, the CEEMDAN algorithm
continues to add new adaptive noise to the residual
series after EMD decomposition, reduces the residual
noise of the mode component, and serves to solve the
mode mixing problem to the maximum extent.
3.2 | LSTM model
The carbon price series have nonlinear and nonstation-
ary characteristics, especially the time‐frequency IMFs
have the attribute of time scale heterogeneity. Therefore,
this paper conducts the LSTM model, which has the
advantages of financial data fitting to capture the time‐
frequency characteristic and fit the nonlinear signals. As
an improved style of the traditional recurrent neural
network, the special cell structure of the LSTM model is
the key to fitting the complex financial time series.42
Where, the long memory ability of cell structure is
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
pricing factors. The training process of each gate
structure can be described as follows:
First, the forget gate is used to decide the forgotten
information and filter information from the previous
hidden layer network, and employs the sigmoid function
to map the current input xt and previous hidden union Ct‐1
into the value between 0 and 1. Then, the forgotten output
of ft is obtained. Second, the input gate determines the
information be saved and updated in the current memory
union Ct. That is, the saved information in a current layer
can be calculated by the sigmoid function by the original
information xt and previous hidden layer memory Ht‐1.
Thirdly, the output gate is designed to acquire the filtered
information of the current cell, the network output of the
current layer ht can be finally calculated by the tanh
function. Furthermore, the multilayer LSTM model is a
network stack of a single LSTM network. Generally, the
multi‐layer LSTM model can extract the financial data
signals, and improve the performance of carbon price
prediction more than a single‐layer network.
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YUN ET AL.
The forget gate is used to filter the input carbon price
IFM signals and previously hidden layer characteristics,
the forget gate output is shown as:
ft = σ (Wf × [ht −1, x t ] + bf ). (11)
The input gate can saves the filtered carbon price
signals, and determines the output of the input gate data:
(10)

it = σ (Wi × [ht −1, x t ] + bi ), (12)

Ct = tan h (WC × [ht −1, x t ] + bC ), (13)
Ct = ft × Ct −1 + it × Ct . (14)
The output gate determines the memorized charac-
teristic in the hidden cell unit and obtains the network
output by the activation function:
ot = σ (Wo × [ht −1, x t ] + bo ), (15)
ht = ot × tan h (Ct ). (16)
Specifically, the above weight functions need to be
calculated separately during the learning process, that is

Wf = Wfx + Wfh, Wi = Wix + Wih , Wc = Wcx + Wch , Wo =
Wox + Woh . it and Ct mean the information update vector
of the input gate, Ct denotes the update vector of the
output gate. ht means the network output of the LSTM
model. bf , bi , bC , and bo represent the bias information. σ
is the sigmoid activation function.
3.3 | The proposed CEEMDAN‐LSTM
model
Based on the nonlinear, nonstationary, and time‐frequency
heterogeneity characteristics of the carbon price series, this
paper constructs a novel mode decomposition machine
learning hybrid model of CEEMDAN‐LSTM to predict the
carbon price. The proposed model combines the strengths of
the CEEMDAN and LSTM model, that is, the CEEMDAN
model is used to fit the nonlinear and nonstationary carbon
price signals, and decompose the original carbon price into
different IMF modes. However, the LSTM model is designed
to improve the forecasting ability of IMF information
obtained by the CEEMDAN model.
The empirical processing follows the idea of
“decomposition–prediction–integration.” First, during
the decomposition stage, the CEEMDAN model is used
to decompose the original carbon price to obtain the
mode signal IMFs and a residual. These mode signals
reflect the time‐frequency volatility of carbon prices.
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
(MAPE) as error indicators to evaluate the deviation between
the predicted price and the real price. The smaller the error
value, the deviation error from the predicted value to the real
one is lower, which denotes the model predicting perform-
ance is perfect. Furthermore, we also use the direction
accuracy (DA) indicator to test the consistency probability
between the investor's prediction direction and the real
market trend. The greater the DA value, the predicted
performance is more consistent with the real price trend and
investors' expectation. The evaluation criteria are as follows:
4 | EMPIRICAL ANALYSIS AND
D I S C U S S IO N
4.1 | Data and statistical analysis
This paper chooses the settlement price of continuous
future contracts of European Union Allowance (EUA)
products traded in the European Union Emission
Trading Scheme to measure the market price of carbon
emissions. The reason is that, as the largest carbon
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.

8 |
TABLE 1 Descriptive statistical.
Mean Std. Dev. Skewness Kurtosis
14.695 12.512 1.999 7.152
a
Significance under the 1% level.
FIGURE 3 Trend volatility of mode components of original carbon price signals.
total of 3195 data are obtained. All data are from the
European energy exchange.
Based on the statistical results shown in Table 1,
we find that: firstly, the average carbon price is 14.65,
the skewness is 1.999 and the kurtosis is 7.152,
indicating that the carbon price has an obvious spike
and thick tail distribution. A positive skewness
suggests that there is an “outlier” phenomenon on
the right side of the carbon price distribution. While a
high kurtosis means that the big variance is caused by
the extreme value of low frequency greater or less than
the price data. Furthermore, the significance of JB
statistics shows the carbon price does not obey the
normal distribution, and LB statistics denotes the
carbon price has obvious long memory characteristics.
Second, as for the stability test, the ADF critical value
is 3.618, which is significant at the 1% level, the result
indicates the original carbon price has the character-
istic of nonstationary. Third, as for the nonlinear test,
when the embedding dimensions are 5 and 10, the
critical value are 136.64 and 299.94, which are
significant at the 1% level, and the results prove the
nonlinear characteristic of the carbon price signals.
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YUN ET AL.
ADF JB‐Stat LBQ(10) LBQ(20) ZBDS(5) ZBDS(10)
a a a a a
3.618 4423.7 53.86 73.32 136.64 299.94a
The above results conclude that the original carbon price
signals have the characteristics of spike and thick tail, non‐
normal, nonstationary and nonlinear. So, we believe it is
suitable to use the CEEMDAN model to perform time‐
frequency decomposition of the price signals.
4.2 | Mode characteristic analysis of
carbon price signals
This article conducts the CEEMDAN model to decompose
the original carbon price signals, and then 11 modes and 1
residual represented different time scale information are
obtained. Figure 3 shows the volatility trend of each mode
component. As we can see from Figure 3, with the signals
change from IMF1 to IMF11, the frequency change from
strong to weak, the market signals impact on carbon price is
becoming more and more stable, as a result, the fluctuation
range of each mode is getting smaller and smaller.
According to the frequency period of each mode showed
in Table 2, we conclude that: firstly, the signal period of
IMF1, IMF2, IMF3, IMF4, IMF5, and IMF6 are basically
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

TABLE 3 Performance of the proposed CEEMDAN‐LSTM:iteration numbers and neuron nodes.

Epoch Neuron RMSE MAE MAPE Epoch Neuron RMSE MAE MAPE
50 4 0.852124 0.604251 0.021667 200 4 1.265655 1.054465 0.042424
8 0.860142 0.609576 0.021840 8 1.039843 0.739843 0.025905
16 0.860930 0.604554 0.021629 16 1.349714 0.991348 0.034131
32 0.876548 0.619985 0.022089 32 2.700912 2.441982 0.099710
64 1.107405 0.792493 0.026358 64 1.337568 0.970796 0.035598
128 1.040820 0.753262 0.025473 128 0.851783 0.601614 0.021578
100 4 0.926938 0.654534 0.023094 300 4 2.206127 1.939486 0.077853
8 0.982062 0.705259 0.024634 8 1.000856 0.701267 0.024818
16 1.471616 1.173723 0.043560 16 2.270293 1.773156 0.073025
32 1.240456 0.914178 0.031287 32 3.214995 2.904908 0.121474
64 1.979625 1.672833 0.067987 64 1.011388 0.681989 0.023661
128 1.838572 1.602399 0.062242 128 0.934105 0.637348 0.022487
Note: Bold indicates the optimal parameter.
Abbreviations: CEEMDAN, complete ensemble empirical mode decomposition with adaptive noise; LSTM, long short‐term memory; MAE, mean absolute
error; MAPE, mean absolute percentage error; RMSE, root mean square error.

the signal shock is high, indicates that those signals have an
obvious impact on the short term carbon price. For example,
the short‐term carbon quota supply and demand and other
irregular events are important external drivers of short‐term
shocks in the carbon price. These explanations are
consistent with the conclusion of Ji et al.45 and Shi et al.46
that the supply and demand capacity of carbon quotas
affected the short‐term carbon price significantly. Second,
the signal period of the residual term is the longest, and the
signal shock frequency is low. The residual means the price
change caused by the market macro factors that mainly
reflect the long‐term market equilibrium. Thirdly the
remaining modes can be regarded as the medium‐term
factors that affect the carbon price signals. Those modes
represent the market response of investors to policy
adjustment, extreme event impact, and other factors.
4.3 | Predicting performance analysis of
the proposed CEEMDAN‐LSTM model
4.3.1 | Parameter optimization
Based on the model designation mentioned above, we
employ the proposed CEEMDAN‐LSTM model to realize
the multistep prediction of the original carbon price signals.
To improve the prediction stability, it is necessary to preset
and optimize the neural network parameters of the
proposed model. As we know, the iterations and neuron
nodes are important training parameters, the iterations
represent the updated times of data training, and the appro-
priate number of iterations can accelerate the convergence
and training process of the neural network. Hence, under
the constraint of the definite loss function, the optimal
iteration is the training times that correspond to the lowest
objective loss. As a chain network, each hidden layer of
LSTM has similar neuron nodes. More neuron nodes can
improve the training and generalization ability of the
proposed model, but it may also cost more training time
and produce an overfitting phenomenon.47
Therefore, referring to the experience of Shen et al.48
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
error when the iteration are 50, 100, 200, 300 and the
neuron nodes of the proposed model are 4, 8, 16, 32, 64, and
128 separately. The results conclude that when the iteration
number is 200 and the neuron node is 128, the error
indicators of RMSE, MAE, and RMSE are 0.851783,
0.601614, and 0.021578, respectively (as shown in Table 3),
that is the minimum value of the whole test sample. So, we
use those parameters to predict the carbon price.
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10 | YUN ET AL.

4.3.2 | Predicting results analysis
According to the defined network parameters, we
conduct the CEEMDAN‐LSTM model to perform the
multi‐step prediction of carbon price mode signals,
the prediction performance can be shown in
Figure 4. Furthermore, to evaluate the superiority
and relative advantages of the proposed model, we
also choose the back propagation (BP) neural network
and the gated recurrent unit (GRU) network as the
comparison models, then construct a cluster of
benchmark models based on other decomposition
technologies such as CEEMD, EEMD, and EMD. The
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
conclude that:
First, compared with other benchmark models, the
prediction performance of the hybrid model with LSTM
show high prediction accuracy in both error indicators and
expected indicator. In particular, the prediction superiority
of the CEEMDAN‐LSTM model is the best, specifically, the
error values of RMSE, MAE, and MAPE are 0.638342,
0.448695, and 0.015666, respectively. The error is the
smallest of all models, the market expectation indicator
DA is 0.687631, which is the largest of all models. These
pieces of evidence reveal that the proposed CEEMDAN‐
LSTM model has significant prediction accuracy and
stability, the model can not only reveal the multiscale
time‐frequency driving mechanism of carbon price signals
but also has good market potential, it can provide technical
support for investors to take market judgment and predict
market prospects.
Second, the hybrid prediction models constructed
based on the CEEMDAN model suggest perfect prediction
accuracy. That is, CEEMDAN‐LSTM, CEEMDAN‐GRU,
and CEEMDAN‐BP models have the smallest error and the
largest market expectation value in various hybrid models.
For example, the error indicators RMSE, MAE, and MAPE
of the CEEMDAN‐GRU model are 0.650083, 0.472725, and
0.01731, respectively, the market expected indicator DA is
0.542066. The error indicators RMSE, MAE, and MAPE of
the CEEMDAN‐BP model are 4.264262, 2.585904, and
0.066193, respectively, the market expected indicator DA is
0.542066. According to Figures 5 and 6, we can also clearly
observe that the carbon price prediction performance of
the hybrid models based on CEEMDAN technology has
significant advantages, the deviation between the predicted
value and the real one is the smallest, and the dynamic
error is relatively stable. These pieces of evidence argue
that the CEEMDAN model has obvious strengths in
carbon price signals decomposition, it can describe the
multiscale time‐frequency characteristics of carbon price
more accurately. The result indirectly proves that the
CEEMDAN model can reduce the carbon price signal
noise to the greatest extent, the proposed predicting model
can provide a valuable reference for investors to judge
the market situation and formulate investment strategies.
4.4 | Robustness test of the CEEMDAN‐
LSTM model
The proposed CEEMDAN model can capture the
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
driving mechanism. However, the LSTM model has
significant advantages in dealing with financial time
series. Therefore, to prove the stability and robustness
of the proposed CEEMDAN‐LSTM model in different
time scales, this paper readjusts the time scale of
the carbon price series and tests the model's robust-
ness in the long‐term, medium‐term, and short‐term
prediction periods. Where, the length of the last
3 years, 2 years, and 1 year of the carbon price series
are intercepted into the long‐term, medium‐term, and
short‐term, respectively. That is, the last 700, 460, and
230 trading days of the sample are taken as the testing
set, and the other samples are regarded as the training
set. The network structure of the test model is
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,
firstly, in terms of the long‐term, medium‐term, and
short‐term carbon price prediction performance, the
CEEMDAN‐LSTM model has a lower error indicators
value than that of other benchmark models. For
example, the long‐term prediction error indicators of
RMSE, MAE, and MAPE are 2.955937, 1.369345, and
0.024355, which are significantly lower than other
benchmark models of CEEMDAN‐GRU and
CEEMDAN‐BP. Similarly, the medium and short‐
term prediction errors are also lower than in other
models. Compared with Figures 7–9, it can be found
that the predicted trend of the CEEMDAN‐LSTM
model is basically consistent with the real carbon
price, the dynamic error deviation is much smaller
than that of other models. This shows that the
prediction superiority of the proposed model has
reliable robustness on different time scales. The
CEEMDAN has been proved to be an effective
technology to reduce data decomposition noise and
reconstruction error, the LSTM model can also
nonlinear map the complex modes with time scale
differences.
Second, the CEEMDAN‐LSTM model has the
smallest error performance in the short‐term carbon
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)

RMSE 2.955937 5.646011 6.045409

MAE 1.369345 4.978014 5.423138

MAPE 0.024355 0.171766 0.182777

Panel B: Medium‐term prediction performance (2 years, total 460 trading days)

RMSE 2.275104 4.645576 4.269791

MAE 1.289469 3.873855 3.888661

MAPE 0.023112 0.074978 0.110686

Panel C: Short‐term prediction performance (1 year, total 230 trading days)

RMSE 1.013417 5.162774 5.088886

MAE 0.703062 4.364404 4.658978

MAPE 0.011943 0.084887 0.140930

Note: Bold indicates the optimal parameter.

Abbreviations: BP, back propagation; CEEMDAN, complete ensemble empirical mode decomposition with adaptive noise; GRU, gated recurrent unit; LSTM,
long short‐term memory; MAE, mean absolute error; MAPE, mean absolute percentage error; RMSE, root mean square error.

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.
 20500505, 0, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/ese3.1304 by Cochrane Mexico, Wiley Online Library on [31/10/2022]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
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
prediction performance. That is, the short‐term
prediction error values of RMSE, MAE, and MAPE
are 1.013417, 0.703062, and 0.011943, respectively,
which are significantly lower than the long‐term
and medium‐term error values. With the prediction
period reducing from the long‐term to the short‐term,
the carbon price prediction error of the proposed
model decreases, as a result, the prediction accuracy
is gradually improving. As shown in Figures 10 and
11, the out‐of‐sample prediction error of the proposed
CEEMDAN‐LSTM model gradually decreases as
the reducing of prediction period from the long
term to the short period. The reasonable explanation
is that the reducing of the prediction period means
the samples used for model training are increasing
so that the network structure of the proposed model
is improved to the greatest extent. Therefore, the
out‐of‐sample prediction performance shows strong
accuracy and stability. These conclusions are
basically similar to Lesort's idea, the better fitting
performance always benefits from the optimized
machine learning structure with more training
samples. 50

16 | YUN
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
PROSPECTS
5.1 | Conclusion
Global carbon dioxide emissions from energy combustion
and industrialization have reached their highest level in
2021. The sharp increase in carbon emissions not only weak
the emissions reduction effort over the years, but also affect
the long‐term sustainability of economic growth and human
health. Therefore, it is of great significance to study the
emissions reduction mechanism of carbon dioxide, espe-
cially exploring the price‐driving mechanism of the carbon
emission trading market. For existing carbon price studies,
the EMD‐type models have become the mainstream method
to decompose carbon price signals into multiscale modes.
However, these models have some theoretical defects in
practice, such as mode mixing problems and lower noise
reduction performance during the data decomposition
process. The innovation of this paper is constructing a
new mode decomposition hybrid carbon price prediction
model CEEMDAN‐LSTM, and testing the prediction
robustness of the proposed model in different time scales
and prediction periods. Based on the idea of
“decomposition–prediction–integration,” this model reveals
the driving mechanism of carbon premium from the
perspective of a multidimensional time scale. The main
conclusions are summarized as follows:
First, the CEEMDAN model has advantages in
describing the multi‐scale time‐frequency characteristics
of carbon price signals. The proposed CEEMDAN‐LSTM
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ET AL.
model can effectively map the nonlinear carbon price.
Compared with other benchmark models, the prediction
accuracy and stability of the proposed model have been
convinced. The results show that this model can provide
new evidence for revealing the carbon premium from the
point of multiscale time‐frequency characteristics. The
results can also provide valuable reference for investors,
emissions reduction entities, and carbon market regula-
tors to judge the market situation, and formulate
investment strategies and other market transactions.
Furthermore, the carbon market price will be more
efficient with the use of the proposed model and guide
the polluting entities to achieve the emission reduction
goals and sustainable development.
Second, the carbon price prediction results of the
CEEMDAN‐LSTM model have significant robustness
and stability. That is, no matter for the long‐term,
medium‐term, and short‐term period, the prediction
error of the proposed model is the smallest compared
with other benchmark models, and the prediction
accuracy is higher. Particularly, the short‐term prediction
performance of the CEEMDAN‐LSTM model is out-
standing. That is, with the reducing of the prediction
period, the samples used for model training and
parameter optimization increasing, and the out‐of‐
sample prediction accuracy and stability are improving.
This conclusion can provide technical reference for
market investors, financial companies, and emissions
reduction entities to predict the market trend of
the carbon price, contribute to more valuable
market decisions.

YUN ET AL.
5.2 | Prospects
In this paper, a novel mode decomposition machine
learning hybrid model of CEEMDAN‐LSTM is constructed
for forecasting carbon price. The conclusions convince the
superiority and robustness of the proposed model in fitting
and predicting the European carbon price.
Then, the EMD‐type of decomposition technologies
are suitable for the signal decomposition of a single price
series, which makes the proposed model of this paper
can only predict the price based on the carbon price lag
series, the result may neglect the nonlinear impact of
structural pricing factors such as coal, crude oil, and
capital market factors on the carbon price. Actually,
apart from the structured factors, unstructured factors
including investor sentiment and policy factors are also
important factors that cannot be ignored. Therefore, for
improving the prediction accuracy, future research needs
to employ the hybrid models of machine learning, text
mining, and other technologies to reveal the dynamic
impact of the structured and unstructured factors on
carbon price.
ACKNOWLEDGMENTS
The authors thank the following research projects for
their funding: the Youth Fund Project for Humanities
and Social Sciences of the Ministry of Education of China
(Grant No. 21YJC790152 and 21YJC630044); the Social
Sciences innovation and development project of Anhui
Province of China (Grant No. 2021CX028); the University
Humanities and Social Sciences Research Project of
Anhui Province of China (Grant No. SK2021A0574).
CONFLI CT OF I NTER EST
The authors declare no conflict of interest.
ORCID
Po Yun http://orcid.org/0000-0002-6579-0299
Yaqi Wu http://orcid.org/0000-0002-8705-4559
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How to cite this article: Yun P, Huang X, Wu Y,
Yang X. Forecasting carbon dioxide emission price
using a novel mode decomposition machine
learning hybrid model of CEEMDAN‐LSTM.
Energy Sci Eng. 2022;1‐18. doi:10.1002/ese3.1304