Controlling GHG emissions from the transportation sector through an ETS: institutional arrangements in Shenzhen, China

Abstract

Many different approaches are needed to achieve reductions in GHG emissions from the transportation sector. Carbon emissions trading schemes (ETSs) are widely used in industry and are effective in reducing the overall social cost of emissions abatement. This article reports the development of a downstream ETS for the transportation sector and its application in Shenzhen, China. The ETS was devised as a mandatory cap-and-trade scheme and, as a first step, was applied to public transportation. An integrated cap was set on the total emissions from buses and taxis: an absolute cap for existing vehicles and a relative increment for new entrants. Allowances were allocated by grandfathering or benchmarking and a ‘reverse mechanism’ was established to encourage the transformation of urban transportation to a low-carbon system. Online fuel consumption monitoring was used to quantify the emissions from vehicles, and the operators were required to surrender enough allowances or credits to account for their verified annual emissions. The mechanisms for allowance trading and carbon offsets provided sufficient flexibility to make emissions abatement and the use of new-energy vehicles and environmentally friendly travel within Shenzhen's urban transportation system economically attractive.

Policy relevance

The transportation sector is becoming a major contributor to the growth in China's GHG emissions. Achieving large reductions in GHG emissions from the transportation sector is a great challenge and requires both technology and policy innovation. The tradable carbon permit is a popular concept in mitigating climate change, but the introduction of a cap-and-trade ETS into the transportation sector is a relatively innovative concept. Shenzhen has launched the first cap-and-trade ETS in a developing country and is currently exploring ways to mitigate carbon emissions by a downstream cap-and-trade ETS for the transportation sector. This article considers the main institutional arrangements and regulatory framework of Shenzhen's transportation carbon ETS. It not only refreshes the theoretical analysis and practical application of downstream cap-and-trade carbon emissions trading in urban transportation, but also provides developing countries with a cost-effective instrument to mitigate their rapid growth in traffic carbon emissions during urbanization.

Keywords:

• China
• emissions trading scheme
• GHG emissions
• Shenzhen
• transportation

Acknowledgements

The authors are very grateful to Climate Policy editor Peter Mallaburn and the anonymous referees for their constructive comments and suggestions on the article and to the China Postdoctoral Science Foundation (2014M560993) for its support. The authors also acknowledge Huw Slater's kind help in modifying the article.

Notes

1. ‘Car restriction’ refers to restricting vehicles in use based on the ‘odd and even number plates' rule.

2. ‘Limited-purchasing order’ refers to regulating the total amount of vehicle purchases.

3. Implementation of the odd-and-even plate restriction rule results in the phenomenon whereby a number of consumers buy or try to buy a second car.

4. The limited-purchasing order leads to the emergence of ‘curve shopping', which actually triggers demand on the part of some residents, who originally had no substantial purchase intention.

5. The National Development and Reform Commission of China (2011) authorized Beijing, Shanghai, Tianjin, Chongqing, Shenzhen, Hubei, and Guangzhou as pilots for regional carbon emission trading on 29 October 2011.