Addressing regional disparities in allowance allocation in China’s national emissions trading scheme

ABSTRACT

China's national emissions trading scheme (ETS) is expected to be operational in 2017. Effectively addressing regional disparities at the provincial level in allowance allocation will greatly affect the acceptance of the allocation approach and thus deserves careful consideration. This article aims to explore possible approaches for addressing regional disparities, by introducing regional adjustment factors (RAF) in free allowance allocation. Based on the principle of ‘national unified rules + stricter adjustment by provincial authorities’, four single factorial and three multi-factorial methods are proposed to calculate the RAFs, through a normalization process. These methods are associated with the most acknowledged factors dealing with regional disparities, including per-capita GDP; per-capita CO₂ emissions; industrial sector contribution to GDP; economy-wide emissions control targets and CO₂ emissions per unit GDP, per unit power and heat output and per unit industrial added value. A comparative analysis is made for the seven methods, in regard to value distribution and level of matching regional political demand.

Key policy insights

• ‘Allowing stricter regional adjustment’ represents a dominant feature for China's national ETS, which aims to address regional disparities and government demands.

• How the adjustment plan is designed will have a major influence on the operation of the national ETS and regional business competitiveness. Provincial governments need to consider the trade-off between auction revenue and local business competitiveness.

• Applying the different methods leads to more scattered results for some regions, for whom the choice of adjustment approach will therefore have a greater impact.

• Based on the analysis, four adjustment methods that generate similar results – the per-capita GDP-based method, the intensity reduction target-based method, the 12th FYP target-based method and intensity-based grandfathering – are recommended for most provincial-level regions, with some exceptions.

KEYWORDS:

• Allowance allocation
• emissions trading
• China
• regional disparity
• adjustment

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The issue of adopting different adjustment factors for various enterprises in the same region is not directly related to regional disparity, so it is not discussed in this paper, but will be considered in further research.

2 According to Briefing on the Operation of Electricity Industry in 2014 (China Electricity Council), the standard coal consumption of power plants above the capacity of 6000 kW is 318 gce/kWh in 2014, which is 3 g/kWh lower than the level in 2013. Assuming the same reduction will happen in 2015, standard coal consumption for power supply (315 gce/kWh) will reduce by 5.4% compared with the level of 2010 (333 gce/kWh).

3 In accordance with the 12th Five-Year Plan on Industrial Energy Conservation, by 2015, energy consumption per unit of industrial added value for above-scale business (whose main business yearly income is more than 20 million RMB) will decrease by 21% from 2010.

4 Assessment results are divided into four grades: excellent (19 provinces), fairly good (7 provinces), qualified (2 provinces) and failed (3 provinces). Guizhou, Jiangxi and Gansu belong to fairly good.

Additional information

Funding

The authors wish to acknowledge the support of Project 71690243 supported by the National Natural Science Foundation of China; the MOE Project of the Key Research Institute of Humanities and Social Sciences at Universities.