Abstract
ABSTRACTChina announced the official start of its national emissions trading system (ETS) construction programme in December 2017, making ETS the primary policy to achieve China’s domestic decarbonization targets and global climate change pledges. Unlike ETS designs in other regions, China’s ETS features a flexible cap that is linked to both reduced carbon intensity and activity levels. Therefore, total CO2 emissions are allowed to increase if economic growth is strong – an important design feature for developing countries that demand an increase in CO2 emissions at least in the near term. Therefore, to guarantee that the carbon price signal emerging from the ETS is strong enough to support the achievement of China’s climate change targets given uncertainties in economic growth, technology improvement and renewable energy development, China’s ETS needs a carbon price floor. In this study, we simulate carbon price paths in different scenarios representing different uncertainty realizations using the China-in-Global Energy Model (C-GEM) and find that a price path of $4 before 2020, $8 between 2021 and 2025 and $12 between 2026 and 2030 (2011 constant price) is able to support the achievement of China’s climate pledges with a 90% chance. Therefore, this price path could be adopted as a feasible carbon price floor for China’s ETS.Key policy insightsA carbon price floor in China’s ETS is needed to achieve China’s climate pledges under uncertainty.Multiple dimensions of uncertainties need to be considered when estimating the carbon price floor.Under our representative estimation, the carbon floor price path needs to be set at $4 per ton before 2020, $8 per ton between 2021 and 2025, and $12 per ton between 2026 and 2030.
Highlights
China’s Nationally Determined Contribution (NDC) submitted under the 2015 Paris Agreement includes three major targets to be reached by 2030: peaking CO2 emissions; reducing CO2 emissions per unit of gross domestic product (GDP) or CO2 intensity by 60% to 65% from the 2005 level; and increasing the share of non-fossil fuels in primary energy consumption to 20% (United Nations Framework Convention on Climate Change, 2015).Emissions trading systems (ETSs) have been considered as the most promising policy to support the achievement of these targets
Unlike ETS designs in other regions, China’s ETS features a flexible cap that is linked to both reduced carbon intensity and activity levels. This means that total CO2 emissions are allowed to increase if economic growth is strong – an important design feature for developing countries that demand an increase in CO2 emissions at least in the near term
Qi, Winchester, Karplus, and Zhang (2014) use the China-in-Global Energy Model (C-GEM) to analyse the impact of economic restructuring in the Chinese economy on trade-embodied CO2 emissions; Zhang, Karplus, Qi, Zhang, and He (2016) use the C-GEM to simulate two climate policy scenarios and assess how new policy directives affect China’s energy and emissions trend; Qi and Weng (2016) use the C-GEM to evaluate the impact of a linked ETS on the achievement of NDCs by 2030
Summary
China’s Nationally Determined Contribution (NDC) submitted under the 2015 Paris Agreement includes three major targets to be reached by 2030: peaking CO2 emissions; reducing CO2 emissions per unit of gross domestic product (GDP) or CO2 intensity by 60% to 65% from the 2005 level; and increasing the share of non-fossil fuels in primary energy consumption to 20% (United Nations Framework Convention on Climate Change, 2015).Emissions trading systems (ETSs) have been considered as the most promising policy to support the achievement of these targets. Unlike ETS designs in other regions, China’s ETS features a flexible cap that is linked to both reduced carbon intensity and activity levels. This means that total CO2 emissions are allowed to increase if economic growth is strong – an important design feature for developing countries that demand an increase in CO2 emissions at least in the near term. To guarantee that the carbon price signal emerging from the ETS is strong enough to support achievement of the targets given uncertainties in economic growth, technology improvement and renewable energy development, China’s ETS needs a carbon price floor
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