Emissions trading systems for global low carbon energy and economic transformation

Abstract

Emissions trading systems have been increasingly adopted by jurisdictions across the globe to facilitate the low carbon energy and economic transformation. Serving as an instrument to price greenhouse gas emissions generated in a variety of economic activities, emissions trading systems are reshaping producer behavior, consumer demand, and the future growth of the economy. Compared to command-and-control regulations or carbon taxes, emissions trading systems possess some unique features. First, if not auctioned, the allowance allocation to producers greatly affects the competitiveness of firms and hence the political acceptance of carbon pricing. Second, emissions trading systems allow potential linking of allowance markets in different jurisdictions, within the same country or internationally. Designs of linking could significantly change the overall policy efficiency and its distributional effects. Third, carbon prices that emerge from the emissions trading systems naturally exhibit volatility. Understanding and predicting this price volatility is crucial for market players in making production and investment decisions. Studying behaviors of producers and consumers at both the micro and macro level is of crucial importance. This paper introduces the special issue “Emissions trading systems for global low carbon energy and economic transformation,” summarizes key findings from the papers selected as well as some recent studies, and provides directions for future research.