Market potential and the industrial sectors inclusion sequence in China's national carbon emission trading: From the perspective of maximizing gains

Abstract

The carbon emission trading scheme (CETS) has been gradually introduced in China to control carbon emissions and boost economic and social development. The existing literature has evaluated the market potential of pilot CETSs or a certain industry, yet no study has focused on the industrial sectors to be covered in the national CETS to analyze trading flexibility and the sector inclusion sequence. This study presents an analytical framework for estimating market potential (i.e., potential gains and carbon emission reduction potential) and industrial sector inclusion sequences for China's national CETS using by-production models. Three simulation scenarios (i.e., no-trading scenario, power sector trading scenario, and multiple-industry trading scenario) and two trading modes (i.e., contemporary and intertemporal trading mode) are simultaneously considered. The novel evidences are: (i) There would be 39.93% (27.7 trillion CNY), 65.26% (273.0 trillion CNY) and 159.42% (666.7 trillion CNY) national aggregated potential gains of CETS in intertemporal power sector trading scenario, contemporary multiple-industry trading scenario and intertemporal multiple-industry trading scenario, and they would help save 3.60%, 5.18% and 6.05% of CO2 emissions reduction, respectively. (ii) CO2 emission permits would transfer from nonmetal minerals, ferrous metals, and electricity, to paper making, non-ferrous metals, petrochemicals, and chemicals under the intertemporal multiple-industry trading simulation. (iii) Based on the principle of potential gain maximization, it is recommended that the sector of smelting and processing of non-ferrous metals should to be included as the next sector in national CETS. The results show that national CETS has great market potential for achieving China's joint carbon control and economic growth goals.