National Emission Trading Scheme Research Articles

Strategic transparency under authoritarian environmentalism: information disclosure and the role of environmental NGOs in China’s national emission trading scheme

ABSTRACT Transparency in carbon markets is considered critical to ensure market effectiveness and public accountability. Low levels of transparency and lack of participation of non-governmental actors are persistent criticisms of Chinese (pilot) emission trading systems. Building on debates around authoritarian environmentalism and China's role therein, this article analyses transparency, manifested as information disclosure, in China's national carbon emission trading scheme (C-ETS) – the largest carbon emission market worldwide. Using expert interviews and content analysis, the article outlines practices of C-ETS information disclosure and discusses its characteristics in the context of China’s environmental governance. Key findings include discrepancies both between central and provincial governments related to information disclosure, and between different provincial governments. And while most industry actors lack interest and capacity to engage in C-ETS disclosure, environmental non-governmental organizations (ENGOs), by contrast, are significantly more involved in the policy process and information disclosure, often as ‘eco-elites’. Overall, this reveals that international and domestic ENGOs retain high-level channels to influence policy design and implementation. Yet, ENGO input is not pursued as a public good valuable for its own sake, but sought strategically as a means to the larger goal of efficient market functioning. This type of ‘strategic transparency,’ as we call it, suggests that China’s environmental governance model – regularly considered to be a key example of authoritarian environmentalism – instead represents an evolving mixture of liberal and illiberal tactics.

Assessing regional employment effects of the national emission trading scheme in China: Does Okun's law work?

Employment creation and climate change mitigation are core tasks for achieving sustainable development goals. Whether or not carbon mitigation policy facilitate employment deserves deep exploration. Through the construction of multi-regional dynamic computable general equilibrium model (CGE) with more scientific energy & environment block, this paper first evaluates regional employment effects of the national emission trading scheme (ETS) in China. Furthermore, we explore the Okun's law of the national ETS based on the mediating effect model. The results show that whether in carbon-intensive industries (CIIs) or non-carbon-intensive industries (NCIIs), employment effects of the national ETS are differentiated across regions. Specifically, the national ETS generally promotes CIIs' employment in Southern, Eastern, Middle Yangtze River and Southwest regions, and has negative effects on CIIs' employment in other regions. Meanwhile, the national ETS brings employment creation to NCIIs of Southern region, while there are opposite results in NCIIs of Northeast region and mixed results in NCIIs of other regions. Moreover, the Okun's law of the national ETS holds in CIIs of each region, but it not fits the data for NCIIs. Therefore, it is important for the Chinese government to consider the differentiated employment effects in different regions carefully rather than adopt one-size-fit-all solution when constructing the national carbon market.

The impact of the carbon trading market on urban coordinated development in China.

Evaluating the effects of China's carbon emission trading scheme (ETS) is crucial for the coordinated development of Chinese cities. Therefore, based on the panel data of 242 cities in China from 2008 to 2019, this paper uses the multi-period difference-in-difference (DID) model to comprehensively evaluate the impact of carbon market on the coordinated development of cities from the perspectives of carbon market policy and carbon market efficiency, and then analyzes the mechanism and heterogeneity of the effect of carbon market efficiency. The results show that both carbon market policy and carbon market efficiency can promote the coordinated development of cities. Science and education expenditure plays a significant intermediary role in the impact of carbon market efficiency on the coordinated development of cities. The heterogeneity test finds that the stricter the performance penalty system, the higher the level of urban coordinated development, and the stronger the effect of carbon market efficiency. The findings of this paper provide policy recommendations for further improving the construction of China's pilot and national ETS and enhancing the coordinated development of Chinese cities.

Carbon emission trading scheme and firm debt financing

This study examines the impact of firms’ participation in an emissions trading scheme (ETS) on their debt financing. Using a unique quasi-natural experimental setting in China, we find that the cost of debt increases and firm access to debt decreases when firms participate in an ETS, which indicates that lenders interpret firms’ participation in an ETS as a potential risk compared to nonparticipation. Further analyses show that the negative effect of participation in an ETS on firm debt financing is more significant for ETS participants that are less able to pass costs on, that operate in regions with less financial marketization, and that are less innovative. For firms that are covered by the national ETS, the restricted access to debt is alleviated for those with experience in a pilot ETS.

Income distribution effect of carbon pricing mechanism under China's carbon peak target: CGE-based assessments

China has implemented a national carbon emission trading scheme (Carbon ETS) to mitigate climate change and has set a goal to reach the peak of carbon emissions by 2030. The potential performance of the carbon tax as a supplement to the carbon ETS may contribute to achieving the carbon peaking target by reducing income inequality among the various labour forces. Nevertheless, carbon pricing places a greater burden on lower-income households than on wealthier households. In this paper, we construct a multisectoral dynamic computable general equilibrium (CGE) model and incorporate the carbon ETS and carbon tax modules with 20 labour income distributions (ID-CGE model). The results indicate that the carbon pricing mechanism has a progressive effect on income distribution and a heterogeneous effect on the income of rural and urban workers. In rural areas, the middle- and high-income labours have witnessed a higher loss in income. In contrast, in urban areas, the low-income labours have experienced a greater decrease in income. Combining carbon tax and ETS policies to achieve carbon peaking goals by 2029 is a superior strategy.

Declining Renewable Costs, Emissions Trading, and Economic Growth: China’s Power System at the Crossroads

As China reaffirms its commitments to limit the climate change risk and improve air quality, a combination of new policy and technology opportunities is presenting itself. A national emission trading scheme (ETS) begun in 2017 and is showing great promise, creating decentralized incentives for cost effective pollution mitigation. At the same time, sustained energy sector innovation is driving the costs of renewable electric power generation below those of fossil fuel substitutes. Early economic evidence of ETS measured pollution reductions, but has not addressed important economy-wide net benefits. This paper focuses on technology and energy cost savings and is the first to account for three multiplier effects—shifting consumption patterns, job growth, and the benefits of induced productivity growth—that would result from accelerated renewable electricity deployment in China. Results from a dynamic recursive computable general equilibrium model for 2017 to 2030 show that expanding renewable deployment can interact with the ETS to slash GHG emissions, as well as energy costs, stimulating significant long-term economic growth. These results suggest that China should accelerate its clean energy transition, not only for the air-quality and climate benefits, but to fulfill the energy sector’s potential to promote innovation, employment, and economic growth.

The first compliance cycle of China’s National Emissions Trading Scheme: insights and implications

China’s national Emissions Trading Scheme (ETS), the largest ETS in terms of the amount of CO2 regulated, was launched on the trading platform operated by the Shanghai Environment and Energy Exchange (SEEE) on July 16th 2021, and has successfully completed its first compliance cycle on December 30th, 2021. During the operation of its first cycle, China’s national ETS differs from other international ETSs in many aspects, including trading products and participants, allowance allocation method, compliance term, and offset mechanism, leading to certain unique trading patterns. Some unique settings are worth noticing including key emitters dominated by state-owned enterprises (SOEs) who also dominate transactions, large-scale power groups’ carbon strategies, allowances for 2 years of 2019 and 2020 being processed in one compliance period and allowed inter-year banking of allowances. All these have led to trading patterns characterized by cyclical demand-driven trading, insufficient trading capabilities of regulated entities, stable allowance price and an increased price of CCER. Nonetheless, the successful running of its first compliance cycle offers invaluable experience for future ETS development in operational mechanism improvement, sector coverage expansion, allocation optimization, and introduction of different types of market players and tradable products, and provides a good reference for future international expansion.

Comparing potential cost savings of energy quota trading and carbon emissions trading for China's industrial sectors

In response to the severity of its environmental problems, China is fully promoting the construction of a national energy quota trading (EQT) market and a national carbon emission trading scheme (ETS). However, there is currently a lack of studies comparing the cost savings of EQT and ETS from the perspective of different industries in different provinces under the same environmental regulation. To fill this gap, this paper first estimates the shadow price of energy and CO2 in 30 Chinese provinces' 38 industrial sectors using provincial-industrial level data from 2005 to 2016 based on the duality theory of non-radial directional distance function. Thus, at the methodological level, this study also overcomes the shortcomings of the DEA method used in most previous studies, that is, it is not appropriate for the cross-industry and cross-province heterogeneity characteristics of the research target. It then evaluates the cost savings of EQT and ETS by simulating actual trade scenarios. We find that the single EQT market obtains greater cost-saving benefits than the mixed market and the single ETS market with the same environmental target. We suggest that the energy consumption units should choose the trading market based on their energy-saving and emissions reduction costs, which is more conducive to achieving the set environmental goals and obtaining cost savings, taking into account different regional industry structures, natural resources, and environmental regulation intensity.

Causal effects of the Tokyo emissions trading scheme on energy consumption and economic performance

The Tokyo emissions trading scheme (ETS) is the first regional ETS in Japan, where a national ETS has not been introduced. In this study, we estimate the policy impacts of the Tokyo ETS on energy usage and economic activities during the scheme’s first phase (2010–2014) and the first four years of its second phase (2015–2018) using business establishment-level panel data from 2007 to 2018. From the matching-based difference-in-differences (DID) estimation results, we find that while regulated business establishments reduced their energy usage beyond their reduction targets set by ETS regulation, the unregulated business establishments chosen by the matching strategy as a comparison group also decreased their energy usage to the same extent. Additionally, the Tokyo ETS did not have a negative impact on the economic activities of regulated business establishments during phases I and II. These results suggest that the emissions cap levels in each phase may not have been sufficiently demanding to induce regulated business establishments to implement additional energy use reduction practices.

The influence and acting pattern of China's national carbon emission trading scheme on regional ecologicalization efficiency of industry

To achieve the goal of energy conservation and emission reduction, China has launched its national carbon-emission trading scheme (ETS). Therefore, it is of great significance to evaluate the implementation of ETS from the perspective of regional ecologicalization efficiency of industry. Based on the panel data of 30 provinces and cities from 2007 to 2019, this study takes the SBM-DEA model to measure the regional ecologicalization efficiency of industry, uses the Difference-in-Difference (DID) model to evaluate the influence of ETS on the regional ecologicalization efficiency of industry, and verifies the outcome by propensity score matching method and counterfactual test. The mediating effect model is used to test the acting pattern of ETS on the regional ecologicalization efficiency of industry. The results show that: (1) ETS can significantly improve the ecologicalization efficiency of industry and shows regional heterogeneity. (2) ETS promotes regional energy conservation, emission reduction, and economic development because of the upgrading of structural optimization, agglomeration of resource synergy, and optimization of ecology. This study offers penetrating insights into the positive operation of the carbon market and provides some useful hints for the development of China’s regional economy.

High-dimensional nonlinear dependence and risk spillovers analysis between China's carbon market and its major influence factors.

In July 2021, China began its national emissions trading scheme, marking a new stage of development for the country’s carbon market. This study analyzes the multidimensional correlation between carbon prices in the Guangdong pilot market and eight influencing factors from three perspectives (the international carbon market, energy prices, and China’s economic situation), using the ARMA-GARCH-vine copula model. The CoVaR between the carbon price and each factor is then calculated using copula-CoVaR. The results show that the crude oil market plays the primary role in the vine structure, and that the carbon market is not strongly correlated with other markets. China’s carbon market is still a regional market driven by government policy, and the international carbon and energy markets (especially the crude oil market) have upward risk spillover effects upon it. This indicates an asymmetric risk spillover between influencing factors and the carbon market. The findings of this study will help market participants prepare risk management strategies and make related investment decisions, and provide a reference for policy makers to formulate national emission trading scheme policies.Graphical abstract

Legal Enforcement of the National Emissions Trading Scheme and the Environmental Protection Tax in China: Heavy Hand or Light Touch?

Abstract This article evaluates the severity of legal enforcement measures for the 2021 National Carbon Emissions Trading Management (Trial) Measures (ETS Trial Measures) and the Environment Protection Tax (EPT) as a potential model or basis for carbon taxation. While the focus is on the content of specific regulatory provisions, evidence of enforcement action forms part of their evaluation. The ETS Trial Measures are compared to the enforcement provisions in Chinese regional emission-trading scheme (ETS) pilots, the 2019 and 2020 opinion solicitation drafts (OSDs), and the March 2021 OSD for a proposed State Council regulation, drawing on the scholarly literature and interviews in the specialist Chinese government and professional and research institutions. The current ETS enforcement measures are weaker and less comprehensive than those in some pilots and in all of the OSDs. Adopting measures recommended by interviewees as effective in the pilots could augment their stringency. The EPT has a stronger basis for enforcement through existing taxation and environmental laws. While its enforcement has been backed by an increasingly centralized environmental governance system, design elements that allow regional flexibility in implementation and inconsistent enforcement have reduced its effectiveness. These outcomes may be influenced by trade-offs between central government objectives and subnational economic and industrial priorities and resistance by powerful commercial interests. These limiting factors can be addressed by effective regulatory implementation, successful trading, and combining stringent penalties with measures that have a lighter touch, such as capacity building, leading to deepening acceptance by all stakeholders.

Market-based solution in China to finance the clean from the dirty

Financial incentives play a key role in promoting renewable energy investments that can help China achieve the ‘dual carbon’ goal. The national emissions trading scheme (ETS) and the renewable energy portfolio standard (RPS) are two existing market-based policy instruments that can generate stable expected returns for low-carbon projects. This paper studies the interactive distribution effects of these two market-based instruments. We use the micro-level thermal power plant data to investigate the abatement effects of the national ETS, in which the details show that the existing rate-based ETS will result in higher negative impacts on power units, whose installed capacities are smaller than 400 MW. The interactive distribution effects between the two markets will occur when the permit allocation standards of the national ETS become stricter than the existing ones. Provinces in Eastern China and Northern China will face high pressure on costs in both ETS and RPS markets. When the levels of the permit allocation standards are set as 70% of the existing ones and the carbon price is assumed to be 200 yuan/ton in 2030, the annual market size of the national ETS will be nearly 100 billion yuan, and the annual market size is predicted to be 250 billion yuan. In the existing rate-based national ETS, the China Certified Emission Reduction (CCER) mechanism will have an offsetting effect, which should be taken into serious consideration during the policy-making processes in the future.

China’s national ETS: Global and local lessons

Since July 16 2021, China’s national emissions trading scheme (ETS) has been officially launched. Comparing with the world’s major carbon markets, China’s carbon market is relatively immature and still needs further development and improvement. This paper lists global and local lessons to China’s national ETS, in terms of cap setting, permit allocation, MRV (Monitoring, Reporting, Verification), trading mechanism, implementation and so on. This article combines development experience with China’s national conditions to provide policy recommendations for the future construction of the national carbon market.

China’s Carbon Market: Potential for Success?

What lessons emerged during the development of China’s national emissions trading scheme (ETS)? It was launched in late 2017 and started operation in July 2021, beginning with online trading of emissions permits. The preceding decade was used for preparing and testing, including seven pilot markets. It was decided to start with the power sector, the largest-emitting sector, and initially cover coal- and gas-fired power plants. This article offers theory-oriented and empirical contributions to domestic-level learning, and asks what happens after a policy has “landed.” We employ an analytical concept originating from diffusion theory—<em>learning</em>—and view <em>internal learning</em> as a key mechanism. We argue that having a slow and well-prepared start contributes to the potential success of the ETS; further, that the lengthy preparatory period enabled China to address various obstacles, providing a strong basis for success, singly and as part of the national mitigation policy complex. <em>Internal learning </em>has proven crucial to the development of the ETS in China, with the learning process continuing as the national ETS becomes operative. We also discuss the possibilities for linking China’s carbon market with other markets, which should heed China’s ETS experience and emphasize learning.

PLANT-LEVEL EVALUATION OF CHINA’S NATIONAL EMISSIONS TRADING SCHEME: BENCHMARK MATTERS

China’s national emission trading scheme (ETS) started operating in 2021 after four years of preparation. In the initial stage of national ETS, benchmarking approach is one of the hottest topics that have gained sufficient attention. For the reason that benchmarks will greatly affect the permits allocation results and thus affect the effectiveness of the carbon market. This paper attempts to investigate the impacts of the benchmark designs of China’s ETS by using plant-level data. Main results show that the current lax benchmark standards adopted by the national ETS will lead to excess surplus of permits. The whole carbon market will achieve market clearance only when the benchmark standards are set as high as the top 2% efficiency levels. If the carbon price is 200[Formula: see text]yuan/ton, the annual trading volume will be 16.4 billion yuan and 13.2 billion yuan in extra will be spent on carbon offsetting for compliance. If the auction mechanism is introduced, the total market size will significantly increase. The auction revenue will exceed 300 billion yuan when 50% of permits are allocated through auction and will exceed 600 billion yuan when all permits are auctioned. These revenues can provide sufficient funds to accelerate China’s low-carbon transformation as well as improve social welfare.

Distributional effects of China's National Emissions Trading Scheme with an emphasis on sectoral coverage and revenue recycling

This paper investigates the distributional effects of China's National Emissions Trading Scheme (ETS) on different income groups by using a recursive dynamic computable general equilibrium model including 11 household groups (including one rural household group and ten urban household groups). Scenarios are designed along two dimensions including sectoral coverage and revenue recycling. For each scenario, distributional effects are decomposed from both source-side and use-side perspectives. Simulation results show that if ETS's carbon revenues are not recycled to households but used for government expenditures, the overall distributional effects are regressive. If ETS's carbon revenues are recycled to households through income tax reduction, there still exist strong regressive distributional effects. However, if revenues are recycled to households through lump-sum transfers, the overall effects are progressive since the positive source-side effects dominates the negative use-side effects. The distributional effects will become slightly progressive when revenues are recycled to households through consumption tax reduction with a broader sectoral coverage. Rural household will benefit from the scenario that revenues are recycled through lump-sum transfers and income tax reduction but suffer from other scenarios. The findings of this paper suggest that policy-makers should pay great attention to the revenue recycling forms since they can have decisive distributional effects on households' welfare. Besides, ETS market should also be carefully designed since a broader sectoral coverage will also alleviate the negative use-side distributional effects.

China's ETS pilots: Program design, industry risk, and long-term investment

The emissions trading scheme (ETS) is considered an effective policy tool for achieving emission reductions. At present, China's ETS pilots have completed several compliance periods and provided rich experience for a national ETS. Taking advantage of the variations in the regional ETS pilots across regions and sectors and over time, this study used a difference-in-difference-in-differences (DDD) model to examine the effects of ETS pilots and differential program design on industry risk and the impacts of risk on future investment horizon. First, we found that the ETS pilots significantly increase profit variability (total risk) in China's industry; that is, ETS induces greater uncertainty in the covered sectors. In terms of industry heterogeneity, non-electricity sectors (specifically ferrous metal) engage in higher levels of risk taking. Second, the influence of such program features as the allowance allocation (total amounts and approaches), China Certification Emission Reduction (CCER) trading volumes, and penalties are heterogeneous. Finally, during the period around the treatment, industry risk can significantly encourage longer rather than shorter investment. In particular, the punishment mechanism and benchmarking allocation play a positive role in regulating the risk–investment relationship.

Does a carbon emissions trading scheme spur urban green innovation? Evidence from a quasi-natural experiment in China

Based on the panel data of 277 cities between 2003 and 2017 and a unique city-level dataset of green patent applications, this study employs the difference-in-differences (DID) method to evaluate the effect of China’s carbon emission trading scheme (ETS) pilots on urban green innovation. The findings indicate that China’s ETS pilots have a positive impact on urban green innovation, and that impact is more significant for municipalities than for prefecture-level cities. Furthermore, the impact on different categories of urban green innovation is heterogeneous. More specifically, China’s ETS pilots have significantly spurred urban green innovation that is closely related to energy conservation and emission reduction, including alternative energy production, transportation, energy conservation and so forth. Moreover, the facilitating effect of China’s ETS pilots on urban green innovation suffers from a lagging effect, which began to show a significant positive effect in 2016. Overall, this paper identifies the effect of China’s ETS pilots on urban green innovation, and suggests that the government should consider the heterogeneity of urban green innovation when designing national ETS policies.

How can national ETS affect carbon emissions and abatement costs? Evidence from the dual goals proposed by China's NDCs

China has committed to goals of reducing its carbon intensity by 60%–65% in 2030 above the 2005 levels and peaking its carbon emissions by latest 2030. While a unified national emission trading scheme (ETS) has been recognized as the crucial instrument to fulfill these ambitious dual goals, its potential performance remains underexplored. This paper quantifies China's need for emission reduction under the dual goals in 2030 by setting three scenarios for peak emissions. Four initial allocation schemes of carbon emission allowance (CEA) are compared according to the emission abatement costs (EACs) of China and its 30 provinces. By estimating the provincial marginal abatement cost curves, China's ETS is simulated through a nonlinear programming aimed at minimizing its total EACs. We find that in achieving the dual goals it makes economic sense to operationalize the ETS that would reduce China's EACs by 61.41%–80.33% in 2016–2030, at a carbon price of 394.55–425.75 RMB per ton CO2. Peaking China's emissions in 2030 is the preferred choice that will trigger the largest GDP in 2016–2030. The historical responsibility scheme is recommended for the CEA allocation because of the lowest initial EACs without ETS. To allow more room for economic growth after China peaks emissions, there is a need for overfulfilling the goal of carbon intensity reduction by 2030, which is consistent with China's latest climate mitigation targets. This research not only highlights the role of ETS in realizing China's dual goals, but provides a scientific framework for evaluating the environmental policies towards multiple goals in a cost-effective manner.