Interprovincial allocation of China's national carbon emission allowance: an uncertainty analysis based on Monte-Carlo simulations

Abstract

Trade-offs between economic development and carbon emission reductions, as well as their uncertainties, are great challenges for climate change negotiations. This article focuses on the equality of China's national carbon allowance allocations for provincial economic development while taking into account the uncertainties in provincial economic output and business-as-usual carbon emission. The allocation equality assessment under an uncertainty model was developed based on the Gini coefficient of accumulated carbon emission per unit of gross domestic product (GDP) and Monte Carlo simulations. It was used to compare the equity and related provincial carbon abatement burdens between the grandfathering allocations under an absolute cap and the output-based benchmarking allocations under a relative cap. The results showed that the volatilities of national carbon abatement and accumulated carbon emission per unit of GDP were more stable under the relative cap. The benchmarking mechanism resulted in a more equitable allowance allocations for provincial economic development and mitigated shocks in provincial output volatility to the equity of national overall allowance allocations. This mechanism was expected to produce a more evenly distributed carbon abatement burden-sharing across provinces, and to reduce the uncertainties of provincial carbon abatements. The benchmarking mechanism is thus proposed as an appropriate choice for China's current equitable provincial carbon allowance allocations.Policy relevanceThe trade-off between economic development and carbon emission reduction is the most controversial issue in climate change negotiations. The uncertainties in economic outputs and carbon emission also pose great challenges. With the obvious imbalance and uncertainty in provincial developments, the equitable allocation of carbon allowances among provinces is the key for China to develop a national carbon emission trading scheme. The comparison of allocation mechanisms under uncertainty provides more practical suggestions for policy making in China. Benchmarking results in more equitable allowance allocation and yields more even and stable abatement burden-sharing across provinces. It narrows the gaps in economic development emissions rights between developed and less developed provinces, and mitigates the shocks of provincial outputs and business-as-usual emissions to the overall allocation equity and provincial carbon abatement burdens. This benchmarking is suggested as a reasonable choice for China's provincial carbon allowance allocation method.