Efficiency of tradable green certificate markets in China

Abstract

A nationwide green certificate trading mechanism has been launched in China for two years, yet the low transaction volume indicates inefficient operation of tradable green certificate (TGC) markets in China. An investigation of the operational efficiency of TGC markets would contribute toward the sustainable development of China’s TGC system and further facilitate the efficient consumption of renewable energy. This work innovatively proposes the definition of TGC market operational efficiency, and subsequently uses hierarchical clustering to establish an input-output efficiency evaluation indicator system for the TGC market operation. The data envelopment analysis (DEA) model and the DEA-Malmquist index are introduced to measure the operational efficiency of TGC markets in China’s seven representative provinces (autonomous regions) corresponding to the period of 2017–2018 as clarifying the obstacles of TGC market operation and proposing improvement measures. Results show that the current TGC markets in seven observed regions are not fully effective with a large room for improvement in various input-output factors. The reduced technology progress hinders the effective operation of the markets, which are specifically illustrated by the unreasonable quota standards, the high and volatile price of TGCs. According to the above problems, some implications of theory and practice are discussed for researchers and policymakers.