A general equilibrium analysis on the impacts of regional and sectoral emission allowance allocation at carbon trading market

Abstract

It is critical to adapt to climate change and reduce the overall carbon emissions. China announced its Nationally Determined Contributions (NDC) at the Paris climate conference in 2015. The carbon cap-and-trade scheme, which plays a key role in carbon emissions abatement, is an effective policy for China to achieve its NDC. This study focuses on the allocation of regional and sectoral initial carbon emission allowances in Shanghai. An impact evaluation on the macro-economy, carbon trading markets and participating sectors for the year 2030 was conducted by applying a computable general equilibrium (CGE) model. The results show that the carbon cap-and-trade scheme would cause a 3.4% GDP loss and an 8.9% welfare loss in 2030. The carbon price would be 161.2 USD/t and 147.2 USD/t under the two representative scenarios. The allocation of initial allowances would have a significant impact on both carbon market scale and sectoral trading behaviors. The power generation sector and the petrol oil sector would undertake the greatest output loss, while the metal smelting sector would become the main seller. Furthermore, the initial allowances allocation under a certain abatement target would hardly affect sectoral production but remarkably affect trade behaviors at the carbon trading markets.

Carbon Emissions Trading and Sustainable Development in China: Empirical Analysis Based on the Coupling Coordination Degree Model

“…After setting an emissions cap, policymakers need to choose how to allocate it. The results of Yu et al [ 25 ] study, based on a computable general equilibrium (CGE) model, showed that the initial allocation of allowances would have a significant impact on the size of the carbon market and the trading behavior of the industry. The power generation and oil sectors would bear the largest output losses, while the metal smelting sector would be the main seller.…”

Impacts of China's Emissions Trading Scheme on the National and Hong Kong Economies: A Dynamic Computable General Equilibrium Analysis

“…A substantial body of literature examines the potential economic impacts of China's national ETS. A group of studies (Fan et al, 2016;Zhang et al, 2016;Dai et al, 2018;Yu et al, 2018;Cao et al, 2019;Ma et al, 2019) examine the impacts of the national ETS, mostly in comparison with those of other policy instruments, such as renewable portfolio standards and carbon tax. Others (Bi et al, 2019;Pang and Timilsina, 2019) explore efficient mitigation strategies to meet China's long-term NDCs, including permit allocation methods and future emissions reduction schedules.…”

A dynamic and continuous allowances allocation methodology for the prevention of carbon leakage: Emission control coefficients

“…Following the launch of China's pilot ETS projects in 2011, some scholars have focused on the design of the regional ETS' in specific provinces or cities (Li and Lu, 2015;Qi et al, 2014). The initial allowance allocation under a certain abatement target would hardly affect sectoral production but remarkably affect trade behaviors in the carbon trading markets in China (Yu et al, 2018).The best choice of ETS allowance allocation scheme in the electricity sector would be the scheme that is based on historical emission intensity (Lirong et al, 2018).…”