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Identifying Strategic Traders in China’s Pilot Carbon Emissions Trading Scheme

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  • Lei Zhu
  • Xu Wang
  • Dayong Zhang

Abstract

This paper uses a sample of 1,867 firms that participate in the “Top-10,000 Energy-Consuming Enterprises Program†in China and aims to identify strategic traders in its pilot emissions trading scheme. Firms included in the ETS can exert their market power and manipulate allowance prices to achieve low compliance costs, which will consequently influence the effectiveness of this platform. This is of great importance to regulators or designers of this system in identifying these strategic traders and understanding their impact. We follow the basic principle proposed by Godal (2005) and develop a simple and implementable empirical procedure to study firm-level data from seven pilot programs in China. The results show that strategic traders exist with clear regional and sectoral differences. As a consequence of strategic trading by these firms, the overall volume of trading falls remarkably, with a clear increase in total compliance costs.

Suggested Citation

  • Lei Zhu & Xu Wang & Dayong Zhang, 2020. "Identifying Strategic Traders in China’s Pilot Carbon Emissions Trading Scheme," The Energy Journal, , vol. 41(2), pages 123-142, March.
    • Handle: RePEc:sae:enejou:v:41:y:2020:i:2:p:123-142
    DOI: 10.5547/01956574.41.2.lzhu
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    References listed on IDEAS

    as
    1. Wang, Xu & Zhang, Xiao-Bing & Zhu, Lei, 2019. "Imperfect market, emissions trading scheme, and technology adoption: A case study of an energy-intensive sector," Energy Economics, Elsevier, vol. 81(C), pages 142-158.
    2. Zhang, Yue-Jun & Wang, Ao-Dong & Tan, Weiping, 2015. "The impact of China's carbon allowance allocation rules on the product prices and emission reduction behaviors of ETS-covered enterprises," Energy Policy, Elsevier, vol. 86(C), pages 176-185.
    3. Cui, Lian-Biao & Fan, Ying & Zhu, Lei & Bi, Qing-Hua, 2014. "How will the emissions trading scheme save cost for achieving China’s 2020 carbon intensity reduction target?," Applied Energy, Elsevier, vol. 136(C), pages 1043-1052.
    4. repec:dau:papers:123456789/10174 is not listed on IDEAS
    5. Springer, Urs, 2003. "The market for tradable GHG permits under the Kyoto Protocol: a survey of model studies," Energy Economics, Elsevier, vol. 25(5), pages 527-551, September.
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    Cited by:

    1. Wang, Xu & Wen, Ziyu & He, Lingyun & Zheng, Haoyang & Yang, Tengfei & Long, Ruyin, 2024. "The role of imperfect market structure in the employment effect of emissions trading scheme in China: A theoretical extension and empirical investigation," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 920-937.

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