An Asymmetric Nash Bargaining Model for Carbon Emission Quota Allocation among Industries: Evidence from Guangdong Province, China

Fei Ye,Zhiqiang Wang,Lixu Li,Yina Li

doi:10.3390/su10114210

Abstract

As the most cost-effective mechanism, an emissions trading scheme (ETS) plays an important role in mitigating global warming, whilst any such scheme requires the initial allocation of quotas. Current allocation methods, however, pay little attention to the interests of abatement entities, which will hinder the long-term sustainable goals. To mobilize the enthusiasm of different abatement entities, this study proposes a multiplayer asymmetric Nash bargaining model, ensuring that all entities can obtain more quotas after negotiation. To demonstrate the advantages of the proposed method, this study selects Guangdong where the principal allocation method is the grandfathering approach as an illustrative case and develops three preference cases including balanced weighting, economic-oriented weighting, and emission-oriented weighting. The empirical results show that the proposed method not only reflects the “polluter pays principle”, but also helps to save emission reduction costs. In further analysis, this study considers both free allocation ratio and ETS coverage, providing inspirations for policy makers to develop new ETS regulations. In general, the proposed method not only assists policy makers of Guangdong in improving the current ETS deficiencies but also can be generalized into other regions.

Highlights

More than 25 billion tons of carbon dioxides associated with human activities are released annually, leading to a series of ecological and environmental issues [1,2]
In accordance with the previous empirical literature related to the emissions trading scheme (ETS) of China, many scholars assumed that the carbon emission quotas were 100% free allocation to avoid the impact of carbon market on various industries and to reduce the resistance from various industries [8,21]
The results of this study show that the Nash bargaining model can promote the adjustment of industrial structure and meet the carbon emission reduction target with less abatement cost, help to achieve the triple bottom line of the economy, environment, and society in the long term

Summary

Introduction

More than 25 billion tons of carbon dioxides associated with human activities are released annually, leading to a series of ecological and environmental issues [1,2]. For this reason, the development of reasonable policies in energy consumption management and the changing from conventional fuel to biofuel are stringent necessity [1]. In terms of energy consumption management policies, the emissions trading scheme (ETS) has been widely adopted by many countries due to its cost-effective [2]. As the world’s largest emitter of greenhouse gas, China planned to establish a unified national ETS at the end of 2017 [3]. As the core component of the ETS, the initial allocation of carbon emission quotas has attracted attentions from both policy makers and academics [6]

Objectives

Methods

Results

Conclusion