Region division of China's carbon market based on the provincial/municipal carbon intensity

Abstract

The difference of carbon trading prices among Emission Trading Scheme pilots may hinder the unified carbon market that China's government plans to establish in 2017. To achieve this goal, this study develops a regional carbon market mode based on the similarity of thirty provinces/municipalities' carbon intensity by the aid of Logarithmic Mean Divisia Index, Autoregressive, and Dynamic Time Warping models. According to the dynamic clustering result, we divide these provinces/municipalities into three sub-markets that are the Western, Eastern, and Central Markets. Furthermore, we propose the carbon emission modes corresponding to each sub-market, namely, the energy-dependence mode (Western Market), sustainable-economy mode (Eastern Market), and industrial-upgrading mode (Central Market). Briefly, we suggest that the unified market should be firstly divided into some sub-markets. Finally, we propose some critical routes as well as corresponding managerial implications for establishing such unified market.