Designing an emissions trading scheme for China with a dynamic computable general equilibrium model |
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| Affiliation: | 1. School of Economics and Management, Beijing University of Chemical Technology, Beijing 100029, China;2. Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190, China;1. Institute of Policy and Management, Chinese Academy of Sciences, Beijing 100190, China;2. Institute for International Studies, CICTSMR, Wuhan University, Wuhan 430072, China;3. International Institute for Applied Systems Analysis, Laxemburg A-2361, Austria;4. Economics and Management School, Wuhan University, Wuhan 430072, China;1. Key Lab on Pollution Ecology and Environmental Engineering, Institute of Applied Ecology, Chinese Academy of Sciences, No. 72 Wenhua Road, Shenyang 110016, China;2. Social and Environmental Systems Division, National Institute for Environmental Studies, 16-2 Onogawa, Tsukuba City, Ibaraki 305-8506, Japan;3. School of Environmental Science and Engineering, Shanghai Jiao Tong University, No. 800 Dongchuan Road, Minhang, Shanghai 200240, China;4. University of Chinese Academy of Sciences, No. 19A Yuquan Road, Beijing 100049, China;5. Department of Social Engineering, Tokyo Institute of Technology, 2-12-1 Ookayama, Meguro-ku, Tokyo 152-8550, Japan;1. School of Management, University of Science and Technology of China, Hefei 230026, China;2. Center for Energy and Environmental Policy Research, Institute of Policy and Management, Chinese Academy of Sciences, Beijing 100190, China;1. School of Economics and Management, Beijing University of Chemical Technology, Beijing 100029, China;2. Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190, China;1. Leibniz University Hanover, Institute for Environmental Economics and World Trade, Königsworther Platz 1, 30167 Hanover, Germany;2. Centre for European Economic Research, Mannheim, Germany;3. Centre for European Economic Research, Mannheim, Germany and University of Heidelberg, Germany |
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| Abstract: | To fulfill its Copenhagen pledges to control carbon emissions and mitigate climate change, China plans to establish a nationwide emissions trading scheme (ETS) in 2016. This paper develops a multi-sector dynamic computable general equilibrium model with an ETS module to study the appropriate ETS policy design, including a carbon cap, permit allocation and supplementary policies (e.g., penalty policies and subsidy policies). The main results are as follows. (1) To achieve China's Copenhagen pledge, the equilibrium nationwide carbon price is observed to be between 36 and 40 RMB yuan per metric ton. (2) The ETS policy has a cost-effective mitigation effect by improving China's production and energy structures with relatively little economic harm. (3) Various ETS sub-policies should be carefully designed to balance economic growth and carbon mitigation. In particular, the carbon cap should be set according to China's Copenhagen pledge. A relatively large distribution ratio of free permits, the output-based grandfathering rule for free permits, a penalty price (on illegitimate emissions) slightly above the carbon price, and a sufficient subsidy (from ETS revenue) are strongly recommended in the early stages to avoid significant economic loss. These designs can be adjusted in later stages to enhance the mitigation effect. |
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| Keywords: | Emissions trading scheme (ETS) Computable general equilibrium (CGE) China Carbon cap Permit allocation |
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