IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v92y2020ics0140988320303522.html
   My bibliography  Save this article

Allowance allocation matters in China's carbon emissions trading system

Author

Listed:
  • Jin, Yana
  • Liu, Xiaorui
  • Chen, Xiang
  • Dai, Hancheng

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.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:eneeco:v:92:y:2020:i:c:s0140988320303522
    DOI: 10.1016/j.eneco.2020.105012
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988320303522
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2020.105012?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fischer, Carolyn & Fox, Alan, 2004. "Output-Based Allocations of Emissions Permits: Efficiency and Distributional Effects in a General Equilibrium Setting with Taxes and Trade," RFF Working Paper Series dp-04-37, Resources for the Future.
    2. Meunier, Guy & Ponssard, Jean-Pierre & Quirion, Philippe, 2014. "Carbon leakage and capacity-based allocations: Is the EU right?," Journal of Environmental Economics and Management, Elsevier, vol. 68(2), pages 262-279.
    3. Zhang, Xiang & Jin, Yana & Dai, Hancheng & Xie, Yang & Zhang, Shiqiu, 2019. "Health and economic benefits of cleaner residential heating in the Beijing–Tianjin–Hebei region in China," Energy Policy, Elsevier, vol. 127(C), pages 165-178.
    4. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Springer;Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
    5. Lawrence H. Goulder & Richard D. Morgenstern, 2018. "China's Rate-Based Approach to Reducing CO2 Emissions: Attractions, Limitations, and Alternatives," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 458-462, May.
    6. repec:dau:papers:123456789/7346 is not listed on IDEAS
    7. 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.
    8. Richard Schmalensee & Robert N. Stavins, 2017. "Lessons Learned from Three Decades of Experience with Cap and Trade," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(1), pages 59-79.
    9. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers 10709, Resources for the Future.
    10. Demailly, Damien & Quirion, Philippe, 2008. "European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry," Energy Economics, Elsevier, vol. 30(4), pages 2009-2027, July.
    11. Dai, Hancheng & Xie, Yang & Liu, Jingyu & Masui, Toshihiko, 2018. "Aligning renewable energy targets with carbon emissions trading to achieve China's INDCs: A general equilibrium assessment," Renewable and Sustainable Energy Reviews, Elsevier, vol. 82(P3), pages 4121-4131.
    12. Carolyn Fischer & Alan K. Fox, 2011. "The Role of Trade and Competitiveness Measures in US Climate Policy," American Economic Review, American Economic Association, vol. 101(3), pages 258-262, May.
    13. Lawrence H. Goulder & Xianling Long & Jieyi Lu & Richard D. Morgenstern, 2019. "China's Unconventional Nationwide CO₂ Emissions Trading System: The Wide-Ranging Impacts of an Implicit Output Subsidy," NBER Working Papers 26537, National Bureau of Economic Research, Inc.
    14. Junjie Zhang & Zhenxuan Wang & Xinming Du, 2017. "Lessons learned from Chinas regional carbon market pilots," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    15. Tian, Xu & Dai, Hancheng & Geng, Yong & Huang, Zhen & Masui, Toshihiko & Fujita, Tsuyoshi, 2017. "The effects of carbon reduction on sectoral competitiveness in China: A case of Shanghai," Applied Energy, Elsevier, vol. 197(C), pages 270-278.
    16. Fischer, Carolyn, 2011. "Market power and output-based refunding of environmental policy revenues," Resource and Energy Economics, Elsevier, vol. 33(1), pages 212-230, January.
    17. Yuan, Jiahai & Li, Peng & Wang, Yang & Liu, Qian & Shen, Xinyi & Zhang, Kai & Dong, Liansai, 2016. "Coal power overcapacity and investment bubble in China during 2015–2020," Energy Policy, Elsevier, vol. 97(C), pages 136-144.
    18. Wang, Peng & Dai, Han-cheng & Ren, Song-yan & Zhao, Dai-qing & Masui, Toshihiko, 2015. "Achieving Copenhagen target through carbon emission trading: Economic impacts assessment in Guangdong Province of China," Energy, Elsevier, vol. 79(C), pages 212-227.
    19. Monjon, Stéphanie & Quirion, Philippe, 2011. "Addressing leakage in the EU ETS: Border adjustment or output-based allocation?," Ecological Economics, Elsevier, vol. 70(11), pages 1957-1971, September.
    20. Wu, Rui & Dai, Hancheng & Geng, Yong & Xie, Yang & Masui, Toshihiko & Tian, Xu, 2016. "Achieving China’s INDC through carbon cap-and-trade: Insights from Shanghai," Applied Energy, Elsevier, vol. 184(C), pages 1114-1122.
    21. Zhang, Lirong & Li, Yakun & Jia, Zhijie, 2018. "Impact of carbon allowance allocation on power industry in China’s carbon trading market: Computable general equilibrium based analysis," Applied Energy, Elsevier, vol. 229(C), pages 814-827.
    22. Jiang, Jingjing & Xie, Dejun & Ye, Bin & Shen, Bo & Chen, Zhanming, 2016. "Research on China’s cap-and-trade carbon emission trading scheme: Overview and outlook," Applied Energy, Elsevier, vol. 178(C), pages 902-917.
    23. Fan, Ying & Wu, Jie & Xia, Yan & Liu, Jing-Yu, 2016. "How will a nationwide carbon market affect regional economies and efficiency of CO2 emission reduction in China?," China Economic Review, Elsevier, vol. 38(C), pages 151-166.
    24. Liu, Zhiqing & Geng, Yong & Dai, Hancheng & Wilson, Jeffrey & Xie, Yang & Wu, Rui & You, Wei & Yu, Zhongjue, 2018. "Regional impacts of launching national carbon emissions trading market: A case study of Shanghai," Applied Energy, Elsevier, vol. 230(C), pages 232-240.
    25. Zhu, Lei & Zhang, Xiao-Bing & Li, Yuan & Wang, Xu & Guo, Jianxin, 2017. "Can an emission trading scheme promote the withdrawal of outdated capacity in energy-intensive sectors? A case study on China's iron and steel industry," Energy Economics, Elsevier, vol. 63(C), pages 332-347.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wu, Qingyang & Wang, Yanying, 2022. "How does carbon emission price stimulate enterprises' total factor productivity? Insights from China's emission trading scheme pilots," Energy Economics, Elsevier, vol. 109(C).
    2. Jia, Zhijie & Wen, Shiyan & Lin, Boqiang, 2021. "The effects and reacts of COVID-19 pandemic and international oil price on energy, economy, and environment in China," Applied Energy, Elsevier, vol. 302(C).
    3. Lee, Chien-Chiang & Hussain, Jafar, 2022. "Carbon neutral sustainability and green development during energy consumption," Innovation and Green Development, Elsevier, vol. 1(1).
    4. Siying Yang & Wenxuan Sun & Zhouyi Wu & Yang He, 2022. "Can the SO2 emission trading system promote urban emission reduction?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 963-974, June.
    5. Yu, Zhongjue & Geng, Yong & Calzadilla, Alvaro & Bleischwitz, Raimund, 2022. "China's unconventional carbon emissions trading market: The impact of a rate-based cap in the power generation sector," Energy, Elsevier, vol. 255(C).
    6. 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).
    7. Yu-Jie Hu & Lishan Yang & Fali Duan & Honglei Wang & Chengjiang Li, 2022. "A Scientometric Analysis and Review of the Emissions Trading System," Energies, MDPI, vol. 15(12), pages 1-20, June.
    8. Gatto, Andrea & Drago, Carlo & Panarello, Demetrio & Aldieri, Luigi, 2023. "Energy transition in China: Assessing progress in sustainable development and resilience directions," International Economics, Elsevier, vol. 176(C).
    9. Shiyi Wu & Rui Niu, 2024. "Development of carbon finance in China based on the hybrid MCDM method," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-11, December.
    10. Zhencheng Xing & Yanyan Ma & Lan Luo & Haikun Wang, 2024. "Harmonizing economies and ecologies: Towards an equitable provincial carbon quota allocation for China’s peak emissions," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-10, December.
    11. Hui Wu & Yaodong Li, 2022. "Does the Emissions Trading System Promote Clean Development? A Re-Examination based on Micro-Enterprise Data," Sustainability, MDPI, vol. 14(24), pages 1-18, December.
    12. Guo, Chaoyi & Zhou, Ziqiao & Liu, Xinyuan & Liu, Xiaorui & Meng, Jing & Dai, Hancheng, 2023. "The unintended dilemma of China's target-based carbon neutrality policy and provincial economic inequality," Energy Economics, Elsevier, vol. 126(C).
    13. Mardones, Cristian, 2024. "Measuring the efficiency gains of merging carbon markets – A microsimulation for thermoelectric and industrial sources," Energy, Elsevier, vol. 290(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yu, Zhongjue & Geng, Yong & Calzadilla, Alvaro & Bleischwitz, Raimund, 2022. "China's unconventional carbon emissions trading market: The impact of a rate-based cap in the power generation sector," Energy, Elsevier, vol. 255(C).
    2. Xin Liu & Yuan Li & Dayong Zhang & Lei Zhu, 2018. "On the Effectiveness of the Abatement Policy Mix: A Case Study of China’s Energy-Intensive Sectors," Energies, MDPI, vol. 11(3), pages 1-31, March.
    3. 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).
    4. Yidan Chen & Jiang Lin & David Roland-Holst & Xu Liu & Can Wang, 2023. "Declining Renewable Costs, Emissions Trading, and Economic Growth: China’s Power System at the Crossroads," Energies, MDPI, vol. 16(2), pages 1-14, January.
    5. Frédéric Branger & Misato Sato, 2017. "Solving the clinker dilemma with hybrid output-based allocation," Climatic Change, Springer, vol. 140(3), pages 483-501, February.
    6. Lin, Boqiang & Jia, Zhijie, 2019. "Impacts of carbon price level in carbon emission trading market," Applied Energy, Elsevier, vol. 239(C), pages 157-170.
    7. Philippe Quirion, 2022. "Output-based allocation and output-based rebates: a survey," Chapters, in: Handbook on Trade Policy and Climate Change, chapter 7, pages 94-107, Edward Elgar Publishing.
    8. Wu, Qunli & Ma, Zhe & Meng, Fanxing, 2022. "Long-term impacts of carbon allowance allocation in China: An IC-DCGE model optimized by the hypothesis of imperfectly competitive market," Energy, Elsevier, vol. 241(C).
    9. 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).
    10. Mardones, Cristian & Cabello, Martin, 2019. "Effectiveness of local air pollution and GHG taxes: The case of Chilean industrial sources," Energy Economics, Elsevier, vol. 83(C), pages 491-500.
    11. Li, Zhaoling & Dai, Hancheng & Song, Junnian & Sun, Lu & Geng, Yong & Lu, Keyu & Hanaoka, Tatsuya, 2019. "Assessment of the carbon emissions reduction potential of China's iron and steel industry based on a simulation analysis," Energy, Elsevier, vol. 183(C), pages 279-290.
    12. Yi-Hua Wu & Hancheng Dai & Yang Xie & Toshihiko Masui, 2019. "The efforts of Taiwan to achieve NDC target: an integrated assessment on the carbon emission trading system," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 99(3), pages 1295-1310, December.
    13. 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).
    14. Sun, YongPing & Xue, JinJun & Shi, XunPeng & Wang, KeYing & Qi, ShaoZhou & Wang, Lei & Wang, Cheng, 2019. "A dynamic and continuous allowances allocation methodology for the prevention of carbon leakage: Emission control coefficients," Applied Energy, Elsevier, vol. 236(C), pages 220-230.
    15. Li, Zhaoling & Dai, Hancheng & Sun, Lu & Xie, Yang & Liu, Zhu & Wang, Peng & Yabar, Helmut, 2018. "Exploring the impacts of regional unbalanced carbon tax on CO2 emissions and industrial competitiveness in Liaoning province of China," Energy Policy, Elsevier, vol. 113(C), pages 9-19.
    16. Christoph Böhringer & Knut Einar Rosendahl & Halvor Storrøsten, 2021. "Smart hedging against carbon leakage [An overview of the GTAP 9 data base]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 36(107), pages 439-484.
    17. Philippe Quirion, 2009. "Historic versus output-based allocation of GHG tradable allowances: a comparison," Climate Policy, Taylor & Francis Journals, vol. 9(6), pages 575-592, November.
    18. Jie Wu & Ying Fan & Yan Xia, 2017. "How Can China Achieve Its Nationally Determined Contribution Targets Combining Emissions Trading Scheme and Renewable Energy Policies?," Energies, MDPI, vol. 10(8), pages 1-20, August.
    19. Tobias Mueller & Steven Gronau, 2023. "Fostering Macroeconomic Research on Hydrogen-Powered Aviation: A Systematic Literature Review on General Equilibrium Models," Energies, MDPI, vol. 16(3), pages 1-33, February.
    20. Martin, Ralf & Muûls, Mirabelle & de Preux, Laure B. & Wagner, Ulrich J., 2014. "On the empirical content of carbon leakage criteria in the EU Emissions Trading Scheme," Ecological Economics, Elsevier, vol. 105(C), pages 78-88.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:92:y:2020:i:c:s0140988320303522. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.