Abstract
To achieve carbon emissions control targets, policymakers often need a basket of policies to account for the complexity of abatement. The instruments in the policy mix are often interconnected. It is of great importance to study how different abatement policies perform in practice—in other words, to evaluate the effectiveness of the abatement policy mix. This paper builds a multisector partial equilibrium model and then studies the policy effectiveness using data from two energy-intensive sectors in China, namely, the iron and steel sector and the cement sector. The results show clear evidence that these policies interact, and the policy mix is not a simple aggregation but rather differs across sectors, which leads to fundamentally different scenarios in terms of energy savings, emissions reductions and production behaviors. Energy-savings subsidies can increase production and profit with a lower equilibrium level of carbon prices, whereas output-based rebating of allowances reduces production and is associated with higher carbon prices.
Highlights
Climate change has become a major global issue, and reducing carbon emissions is considered to be necessary for human welfare
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Summary
Climate change has become a major global issue, and reducing carbon emissions is considered to be necessary for human welfare. The Paris agreement which entered into force in November 2016 has strengthened the global response to the threat of climate change, and the participating countries across the world have outlined their Intended Nationally Determined Contributions (INDCs) Achieving low carbon emissions, is much more complicated and often requires a combination of various kinds of efforts. Union (EU) Emissions Trading System (EU ETS), has clear disadvantages. The EU ETS covers only approximately 40% of the sources of emissions in the EU, and the design of the system has often been criticized. Additional abatement policies (i.e., energy efficiency standards, carbon taxes) can be adopted to form a policy mix to ensure effective emissions reductions
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