National Emission Trading Scheme Research Articles

How to design emission trading scheme to promote corporate low-carbon technological innovation: Evidence from China

The appropriate design of the emission trading scheme (ETS) plays a crucial role in promoting companies to conduct low-carbon technological innovations. Based on a questionnaire survey, this paper examines how the design of the ETS and identified determinants have impacted corporate low-carbon technological investment decisions. The data was collected from 99 companies in the eight areas that are implementing the ETS in China. The results indicate that five attributes significantly influence the possibility of corporate investments in low-carbon technologies and thus need more attention in designing the national ETS, including allowance allocation for existing installations, compliance period, allowance allocation for new entrants, allowance banking and policy stability. From the viewpoint of the surveyed companies, the ETS that allocates allowances for existing installations based on the benchmark, has a long compliance period, allocates allowances for new entrants based on a uniform benchmark and allows companies to bank allowances could effectively encourage companies to conduct the low-carbon technological investment. The results of this study are important in light of ongoing discussions and developments of the national ETS in China.

The effectiveness and heterogeneity of carbon emissions trading scheme in China.

Some developed economies have run emission trading scheme (ETS) to mitigate carbon emissions. However, we know little about the effectiveness and heterogeneity of ETS in a context of developing economy. This paper evaluates the effectiveness and heterogeneity of China's pilot ETS, the first ETS run in a developing economy. Difference-in-difference (DID) and difference-in-difference-in-difference (DDD) methods are employed to analyze provincial industrial-level data. The heterogeneity of ETS effects is also explored from regional and industrial perspectives. The empirical results show that the pilot ETS can effectively reduce pilot industries' carbon emissions. The reduction effect of the pilot ETS has a substantial heterogeneity for different pilot provinces and industries. Carbon emissions are reduced by the pilot ETS through technological innovation and the adjustment of industrial structure. The empirical results suggest that policymakers may consider establishing a national ETS and differentiating carbon quota allowance in covered regions and industries in the current pilot ETS.

Does China's carbon emission trading reduce carbon emissions? Evidence from listed firms

As the largest carbon emitter, China has launched the emissions trading scheme (ETS) in 2013. Since then, whether ETS in China really help reduce carbon emissions has become a hot-button issue. By far, scholars tend to offer the macro-level empirical evidence, and the conclusions are at best mixed. Therefore, we try to reveal the effect of China's ETS from the micro level by focusing on the policy executors, herein the pilot firms. Based on the data of listed firms from 2009 to 2017, we employ the Propensity Score Matching–Difference in Differences method (PSM-DID) to estimate the causal effect of ETS. The results suggest that ETS has come into play to a certain extent (a reduction of 129.588 million tons' carbon emissions), but the effect attenuates over time. Meanwhile, the effect is more pronounced among small-scale firms and non-state-owned firms, as well as those pilot regions adopting systems of ex-post allowance allocation. Therefore, in the process of the national ETS, ex-post allowance allocation should be widely promoted, and more attentions should be given to effectively stimulating the emission reduction capacity of large-scale firms and state-owned firms.

Does China’s carbon emissions trading scheme really work? A case study of the hubei pilot

China launched seven emissions trading scheme (ETS) pilots in 2011, and a national ETS, at the end of 2017 in an attempt to reduce its greenhouse gas emissions (GHGs) and drive its extensive energy transition in a cost-effective way. The Hubei province pilot ETS has operated since 2014, and an analysis of its effectiveness can provide lessons for the nascent national system. This paper disaggregates Hubei’s industrial carbon dioxide (CO2) emissions from 2005 to 2018 into economic scale, economic structure, energy efficiency, and energy structure effects using the logarithmic mean Divisia index (LMDI). Difference-in-difference (DID) models then assess the implementation effectiveness of this ETS, and its impact on the main influencing factors of the LMDI. Ten cities each in the Hubei and Hunan provinces are selected as treatment and control groups, respectively, in the DID models. Results show that the change in industrial CO2 emissions is mainly due to the economic scale and energy efficiency effects. After the ETS implementation, the energy structure effect has a limited impact on emissions, while the economic structure effect makes a negligible contribution. Moreover, the implementation of the ETS has had little demonstrable impact on industrial CO2 emissions, gross domestic product (GDP), energy consumption intensity, and CO2 emission intensity. This lacking of impact is caused by the GHG monitoring capacity deficits of the local Development and Reform Commission, and irrational quota allocations. Effective supervision and quota allocation should be developed to increase the impacts of the ETS.

THE EFFECTIVE BENCHMARK SELECTION MODEL AND SIMULATION IN THE POWER SECTOR OF CHINA’S ETS

In 2019, the National Carbon Emission Trading Scheme (ETS) of China’s power generation industry was officially launched, and the free allocation and benchmark are the primary ways for allowance allocation in the first phase of the national ETS. The carbon allowance allocation method is the basis for the effective operation of the ETS. In order to evaluate China’s carbon allowance allocation method published by policy, we constructed a selection model of the effective benchmark and combined with three different scenarios such as no generation-right trading market, incomplete generation-right trading market and complete generation-right trading market to simulate the operation of the national ETS in China’s power generation industry. The study shows that: (1) according to the current benchmark value published by policy, the carbon allowance supply will exceed demand in all scenarios. (2) Regardless of the scenario, in order to balance the supply and demand of allowance in the ETS, the effective benchmark value should be adjusted to 35th–50th quantile of the carbon emissions per unit power generation.

Does the market value greenhouse gas emissions? Evidence from multi-country firm data

Despite increasing global attention on corporate carbon emissions, few studies have examined the value relevance of carbon emission information in the international context. This paper examines whether carbon emission information voluntarily disclosed by a firm affects its market value. After controlling for a firm's likelihood to provide voluntary carbon disclosures, we find that the level of carbon emissions is negatively related to firm value. This negative impact is more prominent for firms in countries that have a national carbon emission trading scheme and stringent environmental regulations. Furthermore, corporate governance is found to reduce the negative value effect of carbon emissions, indicating that shareholders have favorable perceptions regarding the carbon management ability of firms with good corporate governance. Cultural contexts such as uncertainty avoidance and long-term orientation also affect the value effect of risks and future liabilities associated with carbon emissions. We find that the value-decreasing effect of carbon emissions is weaker in countries characterized by high uncertainty avoidance and long-term orientations.

Features and prospect of China’s national GHG emissions trading scheme

China announced the launch of a national emissions trading scheme (ETS) in December 2017 for the regulation of its carbon dioxides emissions. In emissions trading, China is likely to encounter issues different from those encountered by the European Union and other developed countries. This study first identifies the contextual factors that influence the design of China’s national ETS and affect its performance. After an overview of the design of China’s national ETS, this study focuses on two key features: (1) ex-post adjustment of the initial allowance allocation in proportion to the actual output levels, and (2) treatment of the power sector. Finally, the study analyzes the interaction between China’s national ETS and some overlapping policies such as those on air pollution control. The study’s key findings are that China’s ETS cannot fully achieve cost-effectiveness because of its design, the price behavior of China’s ETS will be different from that of a cap-and-trade ETS, and overlapping policies such as the command-and-control regulations for energy conservation and/or air quality improvement will decrease the demand for allowances and limit the opportunity for allowance trading. These findings are based on existing theoretical studies and relevant global ETS experience.

On the economics of carbon pricing: Insights from econometric modeling with industry-level data

Abstract The literature which tests the Porter hypothesis by studying the role of environmental policies on innovation is not only fragmented, but mostly employs broad measures of environmental regulations. In order to draw consensus in this literature and sufficiently incentivize the pursuit of environmental policy objectives, further contributions on the economics of environmental regulations utilizing alternative methods and data are needed. Therefore, our analysis takes the Chinese national emission trading scheme (ETS) as specific example of such a policy. In the econometric analysis, Chinese carbon prices from this market are used and their impact on innovation is estimated using a dynamic panel data regression. The main findings are that while a carbon price appears to stimulate R&D intensity (innovation input), the boost in R&D does not result into increased sales and profits for industries (innovation output). High energy consuming industries have higher tendencies to innovate but this takes place at the distribution and marketing stages of the value chain. However, since the energy requirement at these levels is less relative to the actual production stage, the energy costs saving may be limited. Therefore, to better the economics of carbon pricing in a competitive world in which risk aversion is a possibility, policies which encourage energy intensive industries to innovate at the production stage would present opportunities. In general, these findings contribute to our understanding of innovation behavior and have the potential to stimulate new debates in the literature.

Does the different sectoral coverage matter? An analysis of China's carbon trading market

By the end of 2017, China formally established the national carbon trading market, however, only electricity industry was eligible to participate in the emission trading scheme (ETS). This paper aims to answer the question as to what should China do after the first step of establishing China's national ETS market using a dynamic recursive CGE model with six scenarios from different coverage according to relevant documents. The results show that when more industries are covered in ETS market it will lead to a higher GDP performance and less ETS price in general. Since the trading price is related to the marginal emission reduction cost of enterprises, the coverage of enterprises with low emission reduction cost can bring lower prices. However, there is no direct relationship between carbon price and emission reduction, as the coverage is different in different. There is no obvious relationship between the additional burden of enterprises and emission reduction, it is only related to carbon price and the coverage. Finally, we find that after covering the power generation industry, the carbon market should cover other primary energy production enterprises, which will bring much better emission reduction benefits than the original plan of the National Development and Reform Commission in China.

The impacts of emission trading scheme on China’s thermal power industry: A pre-evaluation from the micro level

Emission trading scheme is known as a cost-effective measure for mitigating CO2 emissions, and recently, China has started the world's largest carbon trading system. As the most influential industry in determining China's overall CO2 emission level, the thermal power industry will be greatly affected by nationwide carbon market in the near future. This paper explores the impact of the upcoming national emission trading scheme on China's thermal power industry at firm level. First, based on empirical data of 478 thermal power plants, an empirical analytical framework of micro-firm level is constructed. Then, two kinds of policy scenarios, including no carbon emission trading and national emission trading scheme, in two different market structures have been analyzed. The results show that emission trading scheme have positive impacts on reduction of CO2 emissions among China’s power plants and can reduce the total abatement costs by 0.37%–41.5%. Furthermore, most of the thermal power plants are emissions permits buyers including all the low-emission gas-fired power plants. Additionally, compared with the perfect competition market, more than 70% of thermal power plants increase their total abatement costs in imperfect competition market. These findings provide reference for promoting the development of nationwide carbon emission trading system in China.

Carbon Communities and Hotspots for Carbon Emissions Reduction in China

With China’s commitment to peak its emissions by 2030, sectoral emissions are under the spotlight due to the rolling out of the national emission trading scheme (ETS). However, the current sector policies focus either on the production side or consumption while the majority of sectors along the transmission were overlooked. This research combines input–output modelling and network analysis to track the embodied carbon emissions among thirty sectors of thirty provinces in China. Based on the large-data resolution network, a two-step network reduction algorithm is used to extract the backbone of the network. In addition, network centrality metrics and community detection algorithms are used to assess each individual sector’s roles, and to reveal the carbon communities where sectors have intensive emission links. The research results suggest that the sectors with high out-degree, in-degree or betweenness can act as leverage points for carbon emissions mitigation. In addition to the electricity sector, which is included in the national ETS, the study also found that the metallurgy and construction sectors should be prioritized for emissions reduction from national and local levels. However, the hotpots are different across provinces and thus provincial specific targeted policies should be formed. Moreover, there are nineteen carbon communities in China with different features, which provides direction for provincial governments’ external collaboration for synergistic effects.

Nation-wide emission trading model for economically feasible carbon reduction in Japan

The issue of climate change and the development of international agreements around carbon targets such as the Paris agreement have engendered the prospect of a carbon constrained future. As a result, individual nations who are signatory to the Paris Agreement have developed ambitious carbon reduction targets in order to restrict temperature rises to two degrees Celsius compared to pre-industrial levels. To achieve these ambitious goals, nations have a variety of policy approaches at their disposal including feed in tariffs, fossil fuel restrictions, carbon capture and storage, renewable portfolio standards and carbon trading regimes. This study investigates carbon trading, and, using Japan as a case study assesses the economic feasibility and environmental efficiency of a carbon trading scheme underpinned by renewable energy deployment. The model employed uses an optimization approach, cognizant of technological, geographic and economic constraints. Findings identify that such an approach incorporating the 47 prefectures of Japan could engender a 42% reduction in emissions without resilience constraints and 34% incorporating a best-mix, resilient approach. Both approaches prove feasible at moderate carbon prices, considering international norms. The findings underpin policy implications for a future national Japanese emission trading scheme to improve previous single prefecture attempts which did not engender carbon trading.

Allocation of carbon dioxide emission quotas based on the energy-economy-environment perspective: Evidence from Guangdong Province

As one of the most important environmental control mechanisms in China, the Emissions Trading Scheme (ETS) is set to alleviate the contradictions among the energy-economy-environment (3E) system and achieve the sustainable development goals (SDGs), while any such scheme requires an initial allocation of carbon dioxide emission quotas. However, the current allocation method dominated by the grandfathering approach does not reflect this original intention well. Integrating the 3E goals with the quota allocation issue, this paper established a dual-objective programming model that considered both the economic and energy goals, while the environmental goal was reflected in constraints. Evidence from Guangdong Province revealed that the 3E approach was superior to the grandfathering approach in some respects. When the weight given to the energy goal was within a certain interval, the 3E approach could simultaneously optimize the total abatement cost and emission efficiency, which not only reflected the “polluter pays” principle but also avoided the possibility of windfall profits from the redundant quota. In other cases, the 3E approach could unilaterally improve the energy or economic goal to reflect decision preferences. Finally, the findings of this paper have important implications for policy makers seeking to develop new regulations for the national ETS.

Recognition and analysis of potential risks in China's carbon emission trading markets

China formally launched the carbon trading pilots in seven provinces and cities in 2013. Based on the operating situations of international carbon emission trading markets and that in China, this study compares and analyzes the potential risks in the European Union Emission Trading Scheme, California's cap-and-trade system, and the seven regional carbon trading pilots in China. It mainly recognizes market operation risks, risks of uncertain policy expectation, and risks of uncertain mechanism designs existing in China's carbon trading pilots. The carbon market risks are not good for the formation of rational price signals, making it difficult to guide enterprises on how to make low-carbon technology investments. Such risks also affect the effectiveness and functions of carbon markets, which can lead to the non-achievement of national emission reduction goals. China has launched the national carbon emission trading scheme on December 19, 2017. While building the national carbon trading scheme, it is important to fully refer to the experiences of international carbon markets and China's carbon trading pilots apart from strengthening the recognition, control, and supervision of carbon market risks. Doing so can promote the healthy development of China's national carbon trading scheme.

EU-type carbon regulation and the waterbed effect of green energy promotion

This paper studies waterbed effects in a stylized model of carbon regulation, in which all countries participate in an emissions trading scheme (ETS), implement national emissions caps on non-ETS emissions, and support green electricity. Since a change in some country's ETS emissions is exactly offset by opposite changes in the other countries' ETS emissions (waterbed effect), allocative disturbances in one country affect all other ETS countries. We analyze the allocative displacement effects on inputs, outputs, prices and trade that a country, say country A, triggers at home and in the other ETS countries, when it unilaterally increases its support of green electricity via raising its feed-in tariff. ETS emissions turn out to decline in country A and to rise in the other countries. Another remarkable waterbed effect is that country A suffers a welfare loss, whereas the other countries are better off. Country A’s welfare loss is larger than it would be if there would be national ETSs instead of the joint ETS. If green electricity support takes the form of subsidies on the electricity price instead of feed-in tariffs, we get another waterbed effect: green electricity production increases in country A, but declines in the other countries. Various decarbonization indicators improve in country A, but tend to point into the opposite direction in the other countries.

International market mechanisms under the Paris Agreement: A cooperation between Brazil and Europe

Using the Economic Projection and Policy Analysis (EPPA6) model, this paper assesses Emissions Trading Scheme (ETS) cooperation between Brazil and Europe, using harmonised sectoral coverage (electricity generation and energy-intensive sectors). Land Use, Land-Use Change and Forestry (LULUCF) related emissions, which are significant in Brazil, are excluded from trading in the analysis, for two main reasons: (i) in an effort to closely align with existing provisions of the EUETS and (ii) to encourage other sectors of the economy to broaden their mitigation effort to comply with national climate targets. As a result, the relatively decarbonised electricity sector and the energy-intensive sectors in Brazil adopt ambitious targets under the proposal. The effects of the proposal are examined under three scenarios: a national ETS policy, a bilateral cooperation, and a global cooperation. Results show that a domestic ETS reduces emissions and promotes technological substitution towards alternative energy for both participants. Cooperation scenarios imply lower emission reductions in Brazil compared to a domestic ETS, where importing allowances from Europe is more cost-effective. For Europe, cooperating with Brazil has very limited impact on further mitigation. The global scenario sees both regions opt to acquire carbon permits from other regions where abatement costs are lower.

Analysis of the Impact of China’s Emissions Trading Scheme on Reducing Carbon Emissions

By referring to the methods provided by Inter-governmental Panel on Climate Change(IPCC) and National Development and Reform Committee(NDRC), we first calculate the carbon emissions and carbon intensity (measured by emissions per output) of 39 sectors in 24 provinces from 2005 to 2015. Then using the panel data calculated, we apply difference-in-difference (DID) two-way fixed effects models to evaluate the causal impact of China’s Emissions Trading Scheme (ETS) on the reduction of carbon emissions. Empirical results indicate that ETS sectors significantly decreased their emissions relative to non-ETS sectors after the start of ETS, while no obvious impact on carbon intensity was identified after ETS started. The results suggest that there is still room for policy makers to improve the ETS design to achieve declines not only in carbon emissions but also in carbon intensity in national ETS.

Modeling the cost transmission mechanism of the emission trading scheme in China

The national emission trading scheme (ETS) in China, CHN-ETS, was established in 2017 following the start of its regional pilot markets in 2013. It will start with a coverage of electricity supply sector and eight pilot regions. Due to a highly regulated dispatch and pricing system in the electricity supply sector, the additional emission abatement costs brought by the ETS cannot be automatically conveyed between consumers and producers in all regions. This paper modeled the cost transmission of ETS in three scenarios based on the quantification results of regional and sectoral emission flows in the electricity supply sector under consumption-based accounting. The results show that the emissions transferred into pilot cities outweighed the emissions transferred out, not only through direct electricity uses but also through the indirect emissions embodied in other sectors that required intermediate inputs from electricity supply sectors in the pilot cities. Through the cost transmission mechanism, the additional abatement cost caused by the national ETS drove the increases in the household consumption of several energy-intensive sectors, including the metal mining sector in Hebei, the petroleum and gas sector in Heilongjiang, and the nonmetal mining sector in Sichuan, with a sensitive increase of 10.1%, 9.9%, and 3.5%, respectively. However, most sectors (745 of the 810) would suffer an increase rate below 0.1%. As long as the household welfare would be ensured, there is still room for the current average market price in the pilot cities to be further increased toward the official guidance price in the nation-wide market.

Similarity and heterogeneity of price dynamics across China’s regional carbon markets: A visibility graph network approach

Similarity and heterogeneity analysis of price dynamics across the region provide experiences for China’s national carbon emission trading scheme. This study examines the dynamic behavior of carbon prices from the visibility graph network point of view, notably introducing the Jaccard coefficient to measure the similarity. By mapping daily carbon trading prices onto visibility graph networks, we analyze the characteristics of the carbon prices by topological measures of the networks. For the next step, we evaluate the similarity between pilots by the Jaccard similarity coefficient of the constructed visibility graph networks. Consequently, we cluster the pilots based on topology measures of the networks. Results show that the seven carbon markets in China have different patterns of similarity in visibility network properties: They are all small-world networks and are scale-free except for Chongqing pilot. Only Hubei and Shenzhen pilots are assortative, indicating a weak degree of market efficiency. At the same time, the two pilots have the highest value of Jaccard similarity coefficients and Shenzhen pilot presents the highest similarity to the supposed integrated market. According to the structure measures of the networks, the pilots are clustered into four groups which can be seen as sub-markets. Findings in this study indicate that inequalities across those groups should be sufficiently considered in the future national carbon market with particular emphasis on the Hubei pilot. Some sub-markets are suggested to be built according to the similarity in price dynamics.

Carbon emissions intensity reduction target for China's power industry: An efficiency and productivity perspective

This paper proposes a scenario analysis to address whether the national and provincial CO2 emissions intensity reduction target during 2016–2020 would be achievable for China's power industry with the identification of change on carbon productivity. This productivity indicator is further decomposed to investigate contributions of different sources to productivity growth when there exists technological heterogeneity. Evaluation results show that even if all electricity-generating units in each region were able to adopt the best practice, the nationwide 18% intensity reduction target is not feasible through improving technical efficiency or upgrading technology on electricity generation and carbon abatement in a short or medium term. The existence of regional technological heterogeneity in power generation and associated CO2 emissions reduction processes implies the necessity of more differentiated regulations and policies for emission reduction across China's regions and inter-regional technology transfer. The emerging national emission trading scheme could easy some challenges in formulating emission policy for heterogeneous regions.