Emission trading scheme (ETS) is popular to abate anthropogenic emissions throughout the world. Previous researchers focused on evaluating ETS policy effect, but ETS design is usually neglected because ETS is already mostly sophisticated worldwide. This is not the case in China, as the Chinese nationwide ETS (CNETS) came into effect in July 2021. Implemented for a brief period, the CNETS lacks implementation details and thus may not achieve mitigation targets cost-effectively. In this paper, we attempt to narrow the research gap by comprehensively designing the CNETS. Our research framework is based on a dynamic recursive computable general equilibrium (CGE) model. The CGE model results show that the appropriate CNETS should include the coverage of the electricity generation and manufacturing sectors, higher carbon price (175 ${CNY} / {t} {CO}_2$), quota allocation based on the carbon intensity in the previous year, higher quota decline factor (2%) and time-decreasing free quota ratio. Although we have only designed the Chinese ETS in this paper, the research framework may become a paradigm of designing appropriate ETS.
Citation: Shuyang Chen. Designing the nationwide emission trading scheme in China[J]. Green Finance, 2023, 5(3): 431-451. doi: 10.3934/GF.2023017
Emission trading scheme (ETS) is popular to abate anthropogenic emissions throughout the world. Previous researchers focused on evaluating ETS policy effect, but ETS design is usually neglected because ETS is already mostly sophisticated worldwide. This is not the case in China, as the Chinese nationwide ETS (CNETS) came into effect in July 2021. Implemented for a brief period, the CNETS lacks implementation details and thus may not achieve mitigation targets cost-effectively. In this paper, we attempt to narrow the research gap by comprehensively designing the CNETS. Our research framework is based on a dynamic recursive computable general equilibrium (CGE) model. The CGE model results show that the appropriate CNETS should include the coverage of the electricity generation and manufacturing sectors, higher carbon price (175 ${CNY} / {t} {CO}_2$), quota allocation based on the carbon intensity in the previous year, higher quota decline factor (2%) and time-decreasing free quota ratio. Although we have only designed the Chinese ETS in this paper, the research framework may become a paradigm of designing appropriate ETS.
| [1] |
Abrell J, Rausch S, Yonezawa H (2019) Higher Price, Lower Costs? Minimum Prices in the EU Emissions Trading Scheme. Scand J Econ 121: 446–481. https://doi.org/10.1111/sjoe.12279 doi: 10.1111/sjoe.12279
|
| [2] |
Allan G, Lecca P, McGregor P, et al. (2014) The economic and environmental impact of a carbon tax for Scotland: A computable general equilibrium analysis. Ecol Econ 100: 40–50. https://doi.org/10.1016/j.ecolecon.2014.01.012 doi: 10.1016/j.ecolecon.2014.01.012
|
| [3] | Armington PS (1969) A theory of demand for products distinguished by place of origin. Staff Papers (International Monetary Fund). 16: 159–178. |
| [4] |
Bartels M, Musgens F (2008) Is a cap-and-trade system always efficient? The case of new entrants in the emissions trading system of the EU. J Energ Eng-Asce 134: 33–39. https://doi.org/10.1061/(Asce)0733-9402(2008)134:2(33) doi: 10.1061/(Asce)0733-9402(2008)134:2(33)
|
| [5] |
Betz R, Seifert S, Cramton P, Kerr S (2010) Auctioning greenhouse gas emissions permits in Australia. Aust J Agr Resour Ec 54: 219–238. https://doi.org/10.1111/j.1467-8489.2010.00490.x doi: 10.1111/j.1467-8489.2010.00490.x
|
| [6] |
Bi HM, Xiao H, Sun KJ (2019) The Impact of Carbon Market and Carbon Tax on Green Growth Pathway in China: A Dynamic CGE Model Approach. Emerg Mark Financ Tr 55: 1312–1325. https://doi.org/10.1080/1540496x.2018.1505609 doi: 10.1080/1540496x.2018.1505609
|
| [7] |
Blyth W, Bunn D (2011) Coevolution of policy, market and technical price risks in the EU ETS. Energ Policy 39: 4578–4593. https://doi.org/10.1016/j.enpol.2011.04.061 doi: 10.1016/j.enpol.2011.04.061
|
| [8] |
Bushnell JB (2017) (Overly) Great Expectations: Carbon Pricing and Revenue Uncertainty in California. Natl Tax J 70: 837–853. https://doi.org/10.17310/ntj.2017.4.07 doi: 10.17310/ntj.2017.4.07
|
| [9] |
Chen SY (2021a) The Urbanisation Impacts on the Policy Effects of the Carbon Tax in China. Sustainability 13. https://doi.org/10.3390/su13126749 doi: 10.3390/su13126749
|
| [10] |
Chen SY (2021b) The technical impacts of the carbon tax in China. Discover Sustainability 2. https://doi.org/10.1007/s43621-021-00060-9 doi: 10.1007/s43621-021-00060-9
|
| [11] |
Chen SY (2022) The inequality impacts of the carbon tax in China. Hum Soc Sci Commun 9. https://doi.org/10.1057/s41599-022-01285-3 doi: 10.1057/s41599-022-01285-3
|
| [12] |
Chen SY, Wang C (2023a) Inequality impacts of ETS penalties: A case study on the recent Chinese nationwide ETS market. Energ Policy 173. https://doi.org/10.1016/j.enpol.2022.113399 doi: 10.1016/j.enpol.2022.113399
|
| [13] |
Chen SY, Wang C (2023b) Distributional employment impacts of the nationwide emission trading scheme in China. J Environ Manage 334. https://doi.org/10.1016/j.jenvman.2023.117526 doi: 10.1016/j.jenvman.2023.117526
|
| [14] |
Chen SY, Wang C (2023c) Impacts of the population ageing on the effects of the nationwide emission trading scheme in China. Sci Total Environ 887. https://doi.org/10.1016/j.scitotenv.2023.164127 doi: 10.1016/j.scitotenv.2023.164127
|
| [15] |
Chen ZL, Yuan XC, Zhang XL, et al. (2020) How will the Chinese national carbon emissions trading scheme work? The assessment of regional potential gains. Energ Policy 137. https://doi.org/10.1016/j.enpol.2019.111095 doi: 10.1016/j.enpol.2019.111095
|
| [16] |
Choi Y, Liu Y, Lee H (2017) The economy impacts of Korean ETS with an emphasis on sectoral coverage based on a CGE approach. Energ Policy 109: 835–844. https://doi.org/10.1016/j.enpol.2017.06.039 doi: 10.1016/j.enpol.2017.06.039
|
| [17] |
Christodoulou A, Dalaklis D, Olcer AI, et al. (2021) Inclusion of Shipping in the EU-ETS: Assessing the Direct Costs for the Maritime Sector Using the MRV Data. Energies 14. https://doi.org/10.3390/en14133915 doi: 10.3390/en14133915
|
| [18] |
Crossland J, Li B, Roca E (2013) Is the European Union Emissions Trading Scheme (EU ETS) informationally efficient? Evidence from momentum-based trading strategies. Appl Energ 109: 10–23. https://doi.org/10.1016/j.apenergy.2013.03.079 doi: 10.1016/j.apenergy.2013.03.079
|
| [19] |
Dai HC, Xie Y, Liu JY, et al. (2018) Aligning renewable energy targets with carbon emissions trading to achieve China's INDCs: A general equilibrium assessment. Renew Sust Energ Rev 82: 4121–4131. https://doi.org/10.1016/j.rser.2017.10.061 doi: 10.1016/j.rser.2017.10.061
|
| [20] |
Deng MZ, Zhang WX (2019) Recognition and analysis of potential risks in China's carbon emission trading markets. Adv Clim Chang Res 10: 30–46. https://doi.org/10.1016/j.accre.2019.03.004 doi: 10.1016/j.accre.2019.03.004
|
| [21] |
Dong J, Ma Y, Sun HX (2016) From Pilot to the National Emissions Trading Scheme in China: International Practice and Domestic Experiences. Sustainability 8. https://doi.org/10.3390/su8060522 doi: 10.3390/su8060522
|
| [22] | ESMA (2022) Final Report: Emission allowances and associated derivatives. Available from: https://www.emissions-euets.com/carbon-market-glossary/872-european-union-emissions-trading-system-eu-ets. |
| [23] |
Guo ZQ, Zhang XP, Zheng YH, et al. (2014) Exploring the impacts of a carbon tax on the Chinese economy using a CGE model with a detailed disaggregation of energy sectors. Energ Econ 45: 455–462. https://doi.org/10.1016/j.eneco.2014.08.016 doi: 10.1016/j.eneco.2014.08.016
|
| [24] |
Hintermayer M (2020) A carbon price floor in the reformed EU ETS: Design matters! Energ Policy 147. https://doi.org/10.1016/j.enpol.2020.111905 doi: 10.1016/j.enpol.2020.111905
|
| [25] | Huanbao (2022) The Daily Report of the Transaction Price of the Nationwide ETS Price in China on 25 Feb 2022. Available from: https://huanbao.in-en.com/html/huanbao-2347746.shtml. |
| [26] | ICAP (2022) EU Emissions Trading System (EU ETS). Available from: https://icapcarbonaction.com/en/ets/eu-emissions-trading-system-eu-ets. |
| [27] |
Jia ZJ, Wen SY, Sun Z (2022a) Current relationship between coal consumption and the economic development and China's future carbon mitigation policies. Energ Policy 162. https://doi.org/10.1016/j.enpol.2022.112812 doi: 10.1016/j.enpol.2022.112812
|
| [28] |
Jia Z, Wen S, Liu Y (2022b) China's urban-rural inequality caused by carbon neutrality: A perspective from carbon footprint and decomposed social welfare. Energ Econ 113. https://doi.org/10.1016/j.eneco.2022.106193 doi: 10.1016/j.eneco.2022.106193
|
| [29] | Johansen L (1960) A multi-sectoral study of economic growth. Amsterdam; Oxford: North-Holland 177. |
| [30] |
Kim W, Yu J (2018) The effect of the penalty system on market prices in the Korea ETS. Carbon Manag 9: 145–154. https://doi.org/10.1080/17583004.2018.1440852 doi: 10.1080/17583004.2018.1440852
|
| [31] |
Koch N, Fuss S, Grosjean G, et al. (2014) Causes of the EU ETS price drop: Recession, CDM, renewable policies or a bit of everything?-New evidence. Energ Policy 73: 676–685. https://doi.org/10.1016/j.enpol.2014.06.024 doi: 10.1016/j.enpol.2014.06.024
|
| [32] |
Li H, Zhao YH, Wang S, et al. (2019) Scenario analysis of ETS revenue allocation mechanism of China: based on a dynamic CGE model. Environ Sci Pollut R 26: 27971–27986. https://doi.org/10.1007/s11356-019-05964-8 doi: 10.1007/s11356-019-05964-8
|
| [33] |
Li W, Jia ZJ (2016) The impact of emission trading scheme and the ratio of free quota: A dynamic recursive CGE model in China. Appl Energ 174: 1–14. https://doi.org/10.1016/j.apenergy.2016.04.086 doi: 10.1016/j.apenergy.2016.04.086
|
| [34] |
Li W, Jia ZJ (2017) Carbon tax, emission trading, or the mixed policy: which is the most effective strategy for climate change mitigation in China? Mitig Adapt Strat Gl 22: 973–992. https://doi.org/10.1007/s11027-016-9710-3 doi: 10.1007/s11027-016-9710-3
|
| [35] |
Lin BQ, Jia ZJ (2017) The impact of Emission Trading Scheme (ETS) and the choice of coverage industry in ETS: A case study in China. Appl Energ 205: 1512–1527. https://doi.org/10.1016/j.apenergy.2017.08.098 doi: 10.1016/j.apenergy.2017.08.098
|
| [36] |
Lin BQ, Jia ZJ (2018) Impact of quota decline scheme of emission trading in China: A dynamic recursive CGE model. Energy 149: 190–203. https://doi.org/10.1016/j.energy.2018.02.039 doi: 10.1016/j.energy.2018.02.039
|
| [37] |
Lin BQ, Jia ZJ (2019) Impacts of carbon price level in carbon emission trading market. Appl Energ 239: 157–170. https://doi.org/10.1016/j.apenergy.2019.01.194 doi: 10.1016/j.apenergy.2019.01.194
|
| [38] |
Lin BQ, Jia ZJ (2020a) Does the different sectoral coverage matter? An analysis of China's carbon trading market. Energ Policy 137. https://doi.org/10.1016/j.enpol.2019.111164 doi: 10.1016/j.enpol.2019.111164
|
| [39] |
Lin BQ, Jia ZJ (2020b) Why do we suggest small sectoral coverage in China's carbon trading market? J Clean Prod 257. https://doi.org/10.1016/j.jclepro.2020.120557 doi: 10.1016/j.jclepro.2020.120557
|
| [40] |
Liu Y, Lu YY (2015) The Economic impact of different carbon tax revenue recycling schemes in China: A model-based scenario analysis. Appl Energ 141: 96–105. https://doi.org/10.1016/j.apenergy.2014.12.032 doi: 10.1016/j.apenergy.2014.12.032
|
| [41] |
Liu Y, Wei TY (2016) Linking the emissions trading schemes of Europe and China - Combining climate and energy policy instruments. Mitig Adapt Strat Gl 21: 135–151. https://doi.org/10.1007/s11027-014-9580-5 doi: 10.1007/s11027-014-9580-5
|
| [42] |
Loisel R (2009) Environmental climate instruments in Romania: A comparative approach using dynamic CGE modelling. Energ Policy 37: 2190–2204. https://doi.org/10.1016/j.enpol.2009.02.001 doi: 10.1016/j.enpol.2009.02.001
|
| [43] |
Mu YQ, Evans S, Wang C, et al. (2018) How will sectoral coverage affect the efficiency of an emissions trading system? A CGE-based case study of China. Appl Energ 227: 403–414. https://doi.org/10.1016/j.apenergy.2017.08.072 doi: 10.1016/j.apenergy.2017.08.072
|
| [44] | NBS (2021) China Energy Statistical Yearbook 2021. China: China Statistics Press. |
| [45] | NDRC (2015) Enhanced Actions on Climate Change: China's intended nationally determined contributions. Beijing. |
| [46] |
Neuhoff K, Ahman M, Betz R, et al. (2006) Implications of announced phase II national allocation plans for the EU ETS. Clim Policy 6: 411–422. https://doi.org/10.1080/14693062.2006.9685610 doi: 10.1080/14693062.2006.9685610
|
| [47] |
Nong D, Meng S, Siriwardana M (2017) An assessment of a proposed ETS in Australia by using the MONASH-Green model. Energ Policy 108: 281–291. https://doi.org/10.1016/j.enpol.2017.06.004 doi: 10.1016/j.enpol.2017.06.004
|
| [48] |
Sartor O, Palliere C, Lecourt S (2014) Benchmark-based allocations in EU ETS Phase 3: an early assessment. Clim Policy 14: 507–524. https://doi.org/10.1080/14693062.2014.872888 doi: 10.1080/14693062.2014.872888
|
| [49] |
Schinas O, Bergmann N (2021) Emissions trading in the aviation and maritime sector: Findings from a revised taxonomy. Clean Logist Suppl C 1. https://doi.org/10.1016/j.clscn.2021.100003 doi: 10.1016/j.clscn.2021.100003
|
| [50] |
Stenqvist C, Ahman M (2016) Free allocation in the 3rd EU ETS period: assessing two manufacturing sectors. Clim Policy 16: 125–144. https://doi.org/10.1080/14693062.2014.979130 doi: 10.1080/14693062.2014.979130
|
| [51] |
Tang L, Shi JR, Bao Q (2016) Designing an emissions trading scheme for China with a dynamic computable general equilibrium model. Energ Policy 97: 507–520. https://doi.org/10.1016/j.enpol.2016.07.039 doi: 10.1016/j.enpol.2016.07.039
|
| [52] |
Verde SF, Teixido J, Marcantonini C, et al. (2019) Free allocation rules in the EU emissions trading system: what does the empirical literature show? Clim Policy 19: 439–452. https://doi.org/10.1080/14693062.2018.1549969 doi: 10.1080/14693062.2018.1549969
|
| [53] |
Wang P, Dai HC, Ren SY, et al. (2015) Achieving Copenhagen target through carbon emission trading: Economic impacts assessment in Guangdong Province of China. Energy 79: 212–227. https://doi.org/10.1016/j.energy.2014.11.009 doi: 10.1016/j.energy.2014.11.009
|
| [54] | Wing IS (2004) Computable General Equilibrium Models and Their Use in Economy-Wide Policy Analysis: Everything you Ever Wanted to Know (But Were Afraid to Ask). Available from: http://web.mit.edu/globalchange/www/MITJPSPGC_TechNote6.pdf. |
| [55] |
Wu QL, Li CX (2020) How quota allocation affects the unified ETS of China: a simulation with dynamic CGE model. Environ Sci Pollut R 27: 1835–1851. https://doi.org/10.1007/s11356-019-06588-8 doi: 10.1007/s11356-019-06588-8
|
| [56] |
Wu QL, Ma Z, Meng FX (2022) Long-term impacts of carbon allowance allocation in China: An IC-DCGE model optimized by the hypothesis of imperfectly competitive market. Energy 241. https://doi.org/10.1016/j.energy.2021.122907 doi: 10.1016/j.energy.2021.122907
|
| [57] |
Wu R, Dai HC, Geng Y, et al. (2016) Achieving China's INDC through carbon cap-and-trade: Insights from Shanghai. Appl Energ 184: 1114–1122. https://doi.org/10.1016/j.apenergy.2016.06.011 doi: 10.1016/j.apenergy.2016.06.011
|
| [58] |
Yoon S, Jeong S (2016) Carbon Emission Mitigation Potentials of Different Policy Scenarios and Their Effects on International Aviation in the Korean Context. Sustainability 8. https://doi.org/10.3390/su8111179 doi: 10.3390/su8111179
|
| [59] |
Yu M, He MS, Liu FT (2017) Impact of Emissions Trading System on Renewable Energy Output. Procedia Comput Sci 122: 221–228. https://doi.org/10.1016/j.procs.2017.11.364 doi: 10.1016/j.procs.2017.11.364
|
| [60] |
Yu ZJ, Geng Y, Dai HC, et al. (2018) A general equilibrium analysis on the impacts of regional and sectoral emission allowance allocation at carbon trading market. J Clean Prod 192: 421–432. https://doi.org/10.1016/j.jclepro.2018.05.006 doi: 10.1016/j.jclepro.2018.05.006
|
| [61] |
Zhang SL, Wang Y, Hao Y, et al. (2021) Shooting two hawks with one arrow: Could China's emission trading scheme promote green development efficiency and regional carbon equality? Energ Econ 101. https://doi.org/10.1016/j.eneco.2021.105412 doi: 10.1016/j.eneco.2021.105412
|
| [62] |
Zhou D, Liang XY, Zhou Y, et al. (2020) Does Emission Trading Boost Carbon Productivity? Evidence from China's Pilot Emission Trading Scheme. Int J Env Res Pub He 17. https://doi.org/10.3390/ijerph17155522 doi: 10.3390/ijerph17155522
|
 GF-05-03-017 s001.pdf |
 |
Figures(6) / Tables(5)
Shuyang Chen. Designing the nationwide emission trading scheme in China[J]. Green Finance, 2023, 5(3): 431-451. doi: 10.3934/GF.2023017
DownLoad: