Carbon allowance auction design of China's ETS: A comprehensive hierarchical system based on blockchain

Abstract

This study proposes a blockchain-based optimization framework for carbon allowance allocation auctions. First, the study assesses the status quo of carbon trading, pinpointing barriers, future development trends, and identifying carbon quota auction standards and methods pertinent to the Chinese context. Second, based on China's carbon market needs and the technical characteristics of blockchain, this study reconfigures the functions and responsibilities of each participant and creates a framework for a carbon allowance auction system to optimize the carbon trading process. Third, an algorithm for the carbon allowance auction system is constructed, and the corresponding smart contract is created and simulated. The results illustrate that our proposed system framework facilitates universal carbon allowance auctions, efficiently addresses potential disputes during the auction process, enhances market transparency and credibility, and offers comprehensive privacy protection with flexible information disclosure options for corporations. Blockchain's role in fostering paid distribution and incentivizing participation in the carbon market is further recognized. A blockchain-based carbon trading system safeguards transaction security and efficiency, maintains precise transaction records, and provides automated settlement. Ultimately, this paper presents policy suggestions for the development of a national carbon market in China.