Abstract
CO2 Emissions Trading Scheme is a key policy instrument for dealing with increasing greenhouse gas emissions. This work aims at giving some policy recommendations on the design of China’s National Emissions Trading Scheme. The experience accumulated in China’s Carbon Emissions Trading Pilots is quite valuable for China’s National Emissions Trading Scheme, so it is important to analyze the determinants of the prices in these pilots. We use the difference-in-differences model to study various policies respectively, including auction, investment access of individual and institutional traders, and carbon forward. Principal components of economy, energy, climate and allowance characteristic are respectively extracted from alternative variables, such as CPI, energy price, extreme temperature, in four categories. These principal components are set as control variables. Results show that these policies play a big role in the price discovery and stabilization. Auction drives the market price to approach the auction completion price. Carbon price exhibits a positive sensitivity to non-regulated entities’ participation and carbon forward. All the significant variables together can reflect most of the pilots’ price information. Policies have heterogeneous impacts on carbon price. The finding is robust to alternative specifications.
Highlights
Nowadays, China has become one of the world’s largest fossil energy consumers and greenhouse gases emitters
Carbon prices in China’s Carbon Emissions Trading Pilots (C-CETPs) were overpriced at the beginning
To move from pilot phase to formal phase, the CN Emissions Trading Scheme (ETS) still faces uncertainties arising from matters such as allowance allocations, economic fundamentals, energy structure, climate condition and trading principles
Summary
China has become one of the world’s largest fossil energy consumers and greenhouse gases emitters. With growing resources demands and environment constraints globally, China has reached an agreement with other countries on greenhouse gases abatement. The objective of this agreement is to secure world long-run energy supply and protect global environment by promoting the adoption of energy-efficient technologies and the development of renewable energy. To restrict the growing trend of carbon dioxide (CO2) emissions in China, the policymakers choose to learn from the European Union to use a market instrument, CO2 Emissions Trading Scheme (ETS). By creating an effective market for CO2 through some regulations, policymakers give firms an incentive to move towards less fossil-fuel intensive production. The effective operation of ETS is tightly interrelated with the transformation of economic development mode and with the industrial competitiveness
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