Indirect double regulation and the carbon ETSs linking: The case of coal-fired generation in the EU and China

Abstract

Double regulation of carbon emissions is a key policy concern in the context of climate change mitigation. The existing literature on double regulation in an emissions trading system (ETS) context has largely focused on the direct type (when, e.g., an ETS and a carbon tax cover the same entity) and has not yet discussed the indirect type (when, e.g., the ETS and carbon tax cover two related entities in the same production-consumption chain). This paper seeks to contribute to the literature by identifying ‘indirect double regulation’ (ETS & tax) on the coal-fired generation in the EU and China. Specifically, we scrutinized legal documents associated with the coal-fired power and further presented the quantitative evidence of ‘double carbon costs’. From the Law & Economics analysis of ‘indirect double regulation’, we derived implications of ‘indirect double regulation’ for the abatement of coal-fired power sector in its own jurisdiction and – after a hypothetic linkage between the EU ETS and Chinese national ETS – for its linked partner. In response, policy suggestions are provided to mitigate potential competitive distortions but should differentiate distortions by sources.