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Efficiency or Equity? Simulating the Carbon Emission Permits Trading Schemes in China Based on an Inter-Regional CGE Model

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  • Wu, Libo
  • Tang, Weiqi

Abstract

Energy conservation and greenhouse gas (GHG) abatement have been included in the national development strategy of China. However, the rigidity in command-and-control mechanisms and arbitrariness in assignment of GHG abatement burden across regions have caused unnecessary losses in both economic efficiency and social equity. In this paper, we use an Inter-Regional Dynamic CGE (IRD-CGE) model to simulate economic and welfare impacts of climate policies on national and regional level, including carbon intensity targets, regional emission constraints and cap-and-trade mechanism. Comparison among alternative emission reduction policy mechanisms indicates that emission trading scheme can not only moderate the economic and social welfare losses, but also improve social equity by decoupling the allocation of emission permits from economic optimization of emission reduction scheme. From this perspective, emissions trading bridges the concerns for economic efficiency and social equity, since emission permits could be reallocated as an income transfer so as to promote inter-regional equity, while economic efficiency is maintained.

Suggested Citation

  • Wu, Libo & Tang, Weiqi, 2015. "Efficiency or Equity? Simulating the Carbon Emission Permits Trading Schemes in China Based on an Inter-Regional CGE Model," Working Papers 249509, Australian National University, Centre for Climate Economics & Policy.
    • Handle: RePEc:ags:ancewp:249509
    DOI: 10.22004/ag.econ.249509
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    Cited by:

    1. Yanni Yu & Weijie Zhang & Ning Zhang, 2018. "The Potential Gains from Carbon Emissions Trading in China’s Industrial Sectors," Computational Economics, Springer;Society for Computational Economics, vol. 52(4), pages 1175-1194, December.
    2. Bin Ye & Jingjing Jiang & Lixin Miao & Dejun Xie, 2017. "Interprovincial allocation of China's national carbon emission allowance: an uncertainty analysis based on Monte-Carlo simulations," Climate Policy, Taylor & Francis Journals, vol. 17(4), pages 401-422, May.

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    More about this item

    Keywords

    Environmental Economics and Policy; Resource /Energy Economics and Policy;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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