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China's emissions trading system and an ETS-carbon tax hybrid

Author

Listed:
  • Cao, Jing
  • Ho, Mun S.
  • Jorgenson, Dale W.
  • Nielsen, Chris P.

Abstract

China is introducing a national carbon emission trading system (ETS), with details yet to be finalized. The ETS is expected to cover only the major emitters but it is often argued that a more comprehensive system will achieve the emission goals at lower cost. We first examine an ETS that covers both electricity and cement sectors and consider an ambitious cap starting in 2017 that will meet the official objective to reduce the carbon-GDP intensity by 60–65% by 2030 compared to 2005 levels. The two ETS-covered industries are compensated with an output-based subsidy to represent the intention to give free permits to the covered enterprises. We then consider a hybrid system where the non-ETS sectors pay a carbon tax and share in the CO2 reduction burden. Our simulations indicate that hybrid systems will achieve the same CO2 goals with lower permit prices and GDP losses. We also show how auctioning of the permits improves the efficiency of the ETS and the hybrid systems. Finally, we find that these CO2 control policies are progressive in that higher income households bear a bigger burden.

Suggested Citation

  • Cao, Jing & Ho, Mun S. & Jorgenson, Dale W. & Nielsen, Chris P., 2019. "China's emissions trading system and an ETS-carbon tax hybrid," Energy Economics, Elsevier, vol. 81(C), pages 741-753.
    • Handle: RePEc:eee:eneeco:v:81:y:2019:i:c:p:741-753
    DOI: 10.1016/j.eneco.2019.04.029
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    Cited by:

    1. Chen, Zhongfei & Zhang, Xiao & Chen, Fanglin, 2021. "Do carbon emission trading schemes stimulate green innovation in enterprises? Evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 168(C).
    2. Jin, Yana & Liu, Xiaorui & Chen, Xiang & Dai, Hancheng, 2020. "Allowance allocation matters in China's carbon emissions trading system," Energy Economics, Elsevier, vol. 92(C).
    3. Chai, Shanglei & Yang, Xiaoli & Zhang, Zhen & Abedin, Mohammad Zoynul & Lucey, Brian, 2022. "Regional imbalances of market efficiency in China’s pilot emission trading schemes (ETS): A multifractal perspective," Research in International Business and Finance, Elsevier, vol. 63(C).
    4. Dissanayake, Sumali & Mahadevan, Renuka & Asafu-Adjaye, John, 2020. "Evaluating the efficiency of carbon emissions policies in a large emitting developing country," Energy Policy, Elsevier, vol. 136(C).
    5. Jia, Zhijie & Wen, Shiyan & Sun, Zao, 2022. "Current relationship between coal consumption and the economic development and China's future carbon mitigation policies," Energy Policy, Elsevier, vol. 162(C).
    6. Wu, Xiaoping & Liu, Peng & Yang, Lin & Shi, Zhuangfei & Lao, Yongshuai, 2024. "Impact of three carbon emission reduction policies on carbon verification behavior: An analysis based on evolutionary game theory," Energy, Elsevier, vol. 295(C).
    7. Pang, Jun & Timilsina, Govinda, 2021. "How would an emissions trading scheme affect provincial economies in China: Insights from a computable general equilibrium model," Renewable and Sustainable Energy Reviews, Elsevier, vol. 145(C).
    8. Jiang, Hong-Dian & Liu, Li-Jing & Dong, Kangyin & Fu, Yu-Wei, 2022. "How will sectoral coverage in the carbon trading system affect the total oil consumption in China? A CGE-based analysis," Energy Economics, Elsevier, vol. 110(C).
    9. Ru Li & Sigit Perdana & Marc Vielle, 2021. "Potential integration of Chinese and European emissions trading market: welfare distribution analysis," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 26(5), pages 1-28, June.
    10. Bian, Junsong & Zhang, Guoqing & Zhou, Guanghui, 2020. "Manufacturer vs. Consumer Subsidy with Green Technology Investment and Environmental Concern," European Journal of Operational Research, Elsevier, vol. 287(3), pages 832-843.
    11. Kiss, Tibor & Popovics, Steve, 2021. "Evaluation on the effectiveness of energy policies – Evidence from the carbon reductions in 25 countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 149(C).
    12. Aiwen Zhao & Xiaoqian Song & Jiajie Li & Qingchun Yuan & Yingshun Pei & Ruilin Li & Michael Hitch, 2023. "Effects of Carbon Tax on Urban Carbon Emission Reduction: Evidence in China Environmental Governance," IJERPH, MDPI, vol. 20(3), pages 1-19, January.
    13. Hu, Xiurong & Wu, Huihuang & Ni, Wenli & Wang, Qunwei & Zhou, Dequn & Liu, Junfeng, 2023. "Quantifying the dynamical interactions between carbon pricing and environmental protection tax in China," Energy Economics, Elsevier, vol. 126(C).
    14. Yang, Xi & Pang, Jun & Teng, Fei & Gong, Ruixin & Springer, Cecilia, 2021. "The environmental co-benefit and economic impact of China's low-carbon pathways: Evidence from linking bottom-up and top-down models," Renewable and Sustainable Energy Reviews, Elsevier, vol. 136(C).

    More about this item

    Keywords

    Emission trading; Carbon tax; Energy modeling;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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