Optimal carbon allowance price in China’s carbon emission trading system: Perspective from the multi-sectoral marginal abatement cost

Abstract

China’s carbon emission trading system (ETS) was officially launched at the end of 2017 to further promote carbon emissions mitigation. In the ETS, the carbon price is the key factor determining whether the emission reduction target can be achieved. The optimal carbon price is the smallest marginal abatement cost that can achieve the emission reduction target. This study simulates the marginal abatement cost curves of different sectors in China’s ETS and calculate the optimal carbon price of sector coverage scenarios based on the criteria that involve eight sectors in turn. The results show that the marginal abatement cost decreases with increasing sector involvement. The optimal carbon price to achieve the two intensity targets at the same time is between 345 yuan/ton and 1140 yuan/ton. From the sectoral perspective, the power sector undertakes the largest emission reduction, while the transportation sector is responsible for smaller emission reduction. China’s ETS will cause GDP losses from 1.63% to 2.27% compared with the BAU scenario, but it can achieve CO2 reduction from 9.56% to 10.13%.