Analysis of the Impact of China’s Emissions Trading Scheme on Reducing Carbon Emissions

The carbon emission trading scheme (ETS), tradable green certificate (TGC) and green power trading (GPT) policies are vital for promoting energy transformation and carbon reduction under the dual carbon goals. However, the effects of and relationships among multiple policies urgently need to be studied. In this work, the panel data of 30 provinces in China from 2010 to 2023 are used. First, through the multiperiod difference-in-differences (DID) method, fixed effect models and mediating effect models, the carbon reduction effects of the pilot and national ETS policies, the renewable energy development effects of the TGC and GPT policies, and the multipolicy synergy effect are examined. A dual machine learning model is innovatively introduced to test the robustness of the results. Second, the slack-based measure–directional distance function–global Malmquist–Luenberger (SBM–DDF–GML) method is used to calculate the GTFP and investigate its transmission effect on policies. Finally, the impacts of the ETS, TGC and GPT policies on fossil fuel consumption are further analysed. The results indicate the following. (1) The pilot ETS policy reduces carbon emissions and carbon intensity, whereas the national ETS policy increases carbon emissions and carbon intensity in the short term. The TGC and GPT policies increase renewable energy generation and its proportion. (2) The synergy of the pilot ETS and GPT policies is the best for reducing carbon emissions and carbon intensity. The synergy among national ETS, TGC and GPT policies is optimal for developing renewable energy. In addition, there is redundancy between the TGC and GPT policies. (3) The pilot ETS policy inhibits GTFP, whereas the national ETS, TGC and GPT policies promote GTFP. The GTFP significantly reduces carbon emissions and carbon intensity and increases renewable energy generation and its proportion. (4) Both the pilot ETS and national ETS policies reduce the intensity of fossil fuel consumption. The GPT policy reduces the total level of fossil fuel consumption, whereas the TGC policy increases this level. In this work, innovative decarbonisation policies synergy pathways and insights into achieving green and low-carbon transitions in China and other developing countries are provided.

Carbon markets devolve governance to external institutions and displace power from sovereign states. Major producers in these markets, notably China, have expressed concern about the adverse implications for national interests and sovereignty associated with selling off the rights to emit carbon emissions abroad. This article suggests that such concern has shaped the discursive context in which emission trading schemes have gained popularity in the country. Our discourse analysis shows that notions of market power are made manifest as a powerful storyline. In the Chinese language, “power,” “sovereignty,” and “rights” all use the same character. The storyline captures all these expressions and allows for a positive view about active engagement in carbon trading as a way to protect development rights and redeem carbon sovereignty. Thus, the contested policy of emissions trading becomes embedded in the more appealing narrative of national development and made politically attractive, despite unfavorable realities against it.

Does the different sectoral coverage matter? An analysis of China's carbon trading market

Some developed economies have run emission trading scheme (ETS) to mitigate carbon emissions. However, we know little about the effectiveness and heterogeneity of ETS in a context of developing economy. This paper evaluates the effectiveness and heterogeneity of China's pilot ETS, the first ETS run in a developing economy. Difference-in-difference (DID) and difference-in-difference-in-difference (DDD) methods are employed to analyze provincial industrial-level data. The heterogeneity of ETS effects is also explored from regional and industrial perspectives. The empirical results show that the pilot ETS can effectively reduce pilot industries' carbon emissions. The reduction effect of the pilot ETS has a substantial heterogeneity for different pilot provinces and industries. Carbon emissions are reduced by the pilot ETS through technological innovation and the adjustment of industrial structure. The empirical results suggest that policymakers may consider establishing a national ETS and differentiating carbon quota allowance in covered regions and industries in the current pilot ETS.

ABSTRACTChina launched its national carbon emissions trading scheme (ETS) in 2017. The choice of allowance allocation methods can strongly influence the political acceptance of an ETS by enterprises/sectors that are covered by it. This article builds a computable general equilibrium model to conduct a quantitative analysis of the effects of nine common allowance allocation methods on both the macro-economy and the industries covered by the ETS. The results of the model show that national gross domestic product (GDP) decreases by 0.37–0.44% during the 13th Five-Year Plan period against a backdrop of a 2% annual reduction in carbon emissions from the sectors covered by the ETS compared with the business-as-usual scenario. China's total emissions drop by 1.71–1.76%. When auctioning and allocation approaches without ex-post adjustment are used, the allowance price is 40–45 yuan/tCO2. When the dynamic allocation methods are used, the allowance price increases to 70–75 yuan/tCO2. Auctioning and allocation approaches without ex-post adjustment exert the same influence on macroscopic indicators (such as GDP and total emissions) and industry indicators (such as output and price). The dynamic allocation methods have a subsidy effect, which can significantly reduce the effect of the ETS on GDP and industry output while significantly increasing the allowance price and decreasing the economic efficiency of the ETS. The cement and steel industries are the most sensitive to the output subsidy effect of the dynamic allocation methods. This article suggests a limit on the use of dynamic allocation approaches to avoid excessively high allowance prices and excessive subsidies for overcapacity industries.Key policy insightsAuctioning and one-off allocation purely based on historical data are most economically efficient; dynamic allocation based on updated or actual output data could reduce the impact of the ETS on enterprises’ output, but will increase the allowance price and thus reduce the economic efficiency of the ETS.Implementing a national ETS will have limited impact on China's GDP, but could promote emissions abatement of the whole economy in an efficient way.Different allocation methods have almost the same impact on GDP, but the impacts on different sectors are significantly different.

Does China’s carbon emissions trading scheme really work? A case study of the hubei pilot

How can national ETS affect carbon emissions and abatement costs? Evidence from the dual goals proposed by China's NDCs

Review of recent progress of emission trading policy in China

Does China's carbon emission trading reduce carbon emissions? Evidence from listed firms

Sector decomposition of China’s national economic carbon emissions and its policy implication for national ETS development

Communicating Uncertainty about Climate Change: The Scientists’ Dilemma

China’s emissions trading scheme, firms’ R&D investment and emissions reduction

ABSTRACTChina plans to launch its nationwide Emissions Trading Scheme (ETS) in 2017. Uncertainty in China’s future economic growth rate and its effect on underlying emissions may need to be addressed to ensure stability of the scheme. This article investigates an ex-post cap adjustment mechanism for China’s ETS. An applicable rule for indexation of emissions targets to gross domestic product (GDP) adjustment is presented. Such an ex-post optimal emissions intensity target is estimated in an empirical simulation of the Hubei ETS, a large pilot scheme in a fast-growing Chinese province. And its implications for China’s planned national ETS have been discussed. The article finds that by correcting the emissions cap for the difference between expected and realized GDP, the ex-post adjustment can minimize the abatement costs. It can also limit the influence of uncertainties, as it minimizes the standard deviation of realized abatement, abatement cost, and allowance price for a given expected emissions reduction. In addition, with a limited number of parameters requiring estimation, the ex-post cap adjustment mechanism is feasible. It is consistent with the anticipated design of China’s planned national ETS and could be used alongside other design options such as price corridors.POLICY RELEVANCEIt will be important for the stability of China’s planned national ETS to address uncertainty about future GDP growth which can significantly affect underlying emissions growth. This paper proposes a specific solution, namely an ex-post cap adjustment mechanism for the ETS cap. This method provides flexibility with transparent rules, would be consistent with China’s overall ETS policy design, and could be implemented in practice as the required parameters can be readily estimated.

Energy, economic and environmental impact of government fines in China's carbon trading scheme

Boykoff and Mansfield (2008), in a recent paper in this journal, provide a detailedanalysis of the representation of climate change in the UK tabloid newspapers.They conclude that the representation of this issue in these papers ‘diverged fromthe scientific consensus that humans contribute to climate change’. That is,portrayal of climate change in tabloid newspapers contradicts the conclusions ofthe fourth Intergovernmental Panel on Climate Change (IPCC) assessment (IPCC2007). Is it healthy to have the scientific consensus challenged so frequently? Butshould we worry about systematic misrepresentation of scientific consensus? Webelieve the answer to both of these questions is yes. To present regular updates onclimate change issues in the popular press is important because the changes inbehaviour needed to achieve substantial reductions in greenhouse gas emissionsrequire a broad understanding of the basic facts. However, if the majority ofreaders receive misleading information, it will be difficult to achieve the level ofpublic understanding necessary to make such reductions needed to avoiddangerous climate change (Schellnhuber