Allowance allocation matters in China's carbon emissions trading system |
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| Affiliation: | 1. Resources for the Future, Washington DC, United States;2. Lawrence Berkeley National Laboratory, San Francisco, United States;1. School of Economics and Management, Tongji University, 1239 Siping Road, Shanghai, 200092, PR China;2. International Center for Auditing and Evaluation, Nanjing Audit University, Nanjing, 211815, PR China;3. Manning School of Business, University of Massachusetts Lowell, Lowell, MA, 01845, USA;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 Management and Economics, Beijing Institute of Technology, Beijing 100081, PR China;2. Business School of Hunan University, Changsha 410082, PR China;3. Center for Resource and Environmental Management, Hunan University, Changsha 410082, PR China;4. Center for Energy and Environmental Policy Research, Beijing Institute of Technology, Beijing 100081, PR China;5. Hologic Corporation, 2585 Augustine Dr, Santa Clara, CA 95054, USA |
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| Abstract: | China's national carbon emissions trading system (ETS) initially started by covering the power generation sector with a rate-based allocation of emission allowances. This single-sector ETS scheme is a tradable performance standard and loosens the participants' emission abatement effort. Given the stringent emission reduction targets implied by China's Nationally Determined Contributions (NDCs) and the expectation that ETS will cover more sectors in the future, we simulate a national ETS of ten carbon-intensive sectors with mass-based, output-based allocation (OBA) of emission allowances. We uncover the impacts and mechanisms of this ETS by comparing the sectoral abatement behaviors across policy scenarios with varying allocation schemes and numbers of benchmarks. We evaluate if the simulated ETS meets important efficiency principles and exhibits desired features. The results show that this ETS achieves China's NDCs with modest macroeconomic losses. The mass-based OBA leads to evenly distributed emission reduction efforts for all ETS participating sectors. It also limits the emission trading volumes and results in slight to modest impacts on sectoral output, especially for the upstream sectors. OBA with fewer benchmarks enhances emission abatement efforts with the caveats of relatively cleaner participants being subsidized by the ETS and slightly higher impacts on the macroeconomy. |
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