Abstract
China inaugurated its nationwide emissions trading scheme (ETS) in 2021 as a key policy instrument to fulfill its carbon-peak and carbon-neutrality commitments. The allocation scheme of Chinese ETS is based on grandfathering and benchmarking and has been argued as economically inefficient. This paper proposes an alternative emission quota allocation scheme, a prospective zero-sum gain data envelopment analysis (pZSG-DEA) approach, to efficiently allocate CO2 emission quotas among market participants. We examined the potential economic gains and losses of implementing this scheme in China. Results showed that the proposed quota allocation can potentially lower the country's carbon intensity in 2020 by an additional 6.96 % compared to the 2005 level. The gains and losses vary substantially across 30 provinces. Beijing, Chongqing, and Zhejiang, were identified as potential quota receivers because increasing their emission quotas could lead to large economic gains; while Liaoning, Hebei, and Guizhou could be major quota givers as their emission reduction is associated with low economic losses. This study could be informative for the design of a high-efficiency emission quota allocation scheme for China's nationally unified emission trading market.
Published Version
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