Carbon Cap-and-Trade in China: A Comprehensive Framework

ABSTRACT

This article proposes a comprehensive framework to explore a possible carbon cap-and-trade scheme in China. By applying the case of China, our empirical results present the demand side and supply side of carbon-emission permits in the market and several other significant findings: (i) carbon dioxide (CO₂) marginal abatement cost varies a lot among different regions; (ii) in total, CO₂ emissions could have been reduced by 5.14 billion tons if all the provinces had achieved their anticipated environmental performance during 1997–2014; (iii) the equilibrium price of CO₂ trading is 241 RMB/ton, irrelevant to the original allocation of allowances.

KEY WORDS:

• cap-and-trade
• carbon emissions
• climate change
• environmental performance
• shadow prices

Funding

The article is supported by the China Postdoctoral Science Foundation (number 2016M600772), the Grant for Collaborative Innovation Center for Energy Economics and Energy Policy (number 1260-Z0210011), Xiamen University Flourish Plan Special Funding (number 1260-Y07200), Fundamental Research Funds for the Central Universities (number 20720151039), and Social Science Fund of Fujian province (number FJ2016B138).

Notes

^1. The freely disposable inputs refer to that if $X^{\prime }\ge X$, then $P\left(X^{\prime }\right)\supseteq P\left(X\right)$.

^2. This article does not consider the achieved emission reduction before 2014. That is, even if some provinces have already achieved the target of decreasing carbon intensity by 45%, they have to keep reducing carbon intensity by 3.9% per year in the following years.

Additional information

Funding

The article is supported by the China Postdoctoral Science Foundation (number 2016M600772), the Grant for Collaborative Innovation Center for Energy Economics and Energy Policy (number 1260-Z0210011), Xiamen University Flourish Plan Special Funding (number 1260-Y07200), Fundamental Research Funds for the Central Universities (number 20720151039), and Social Science Fund of Fujian province (number FJ2016B138).