Emissions Trading Scheme Pilots Research Articles

The impact of Chinese carbon emission trading scheme (ETS) on low carbon energy (LCE) investment

China is planning to introduce emission trading scheme (ETS) to decrease CO2 emission. As low carbon energy (LCE) will play a pivotal role in reducing CO2 emissions, our paper is to assess the extent and the conditions under which a carbon ETS can deliver LCE investment in China. We chose wind technology as a case study and a real-option based model was built to explore the impact of a number of variables and design features on investment decisions, e.g. carbon and electricity price, carbon market risk, carbon price floor and ceiling and on-grid ratio. We compute critical values of these variables and features and explore trade-offs among them. According to our work, a carbon ETS has a significant effect on wind power plant investment although it cannot support investment in wind power on its own. Carbon price stabilization mechanisms such as carbon price floor can significantly improve the effect of carbon ETS but the critical floor to support investment is still much higher than the carbon price in China pilot ETSs. Our results show that other policy measures will be needed to promote low-carbon energy development in China.

Aligning emissions trading and feed-in tariffs in China

In 2013, China launched its domestic pilot emissions trading scheme (ETS) as a cost-effective strategy to reduce CO2 emissions. Theoretically, the ETS can interact with the feed-in tariffs (FITs) applied to renewable energies (REN). This article presents a simple method to demonstrate how FITs can be adjusted based on the evolution of ETS carbon prices in order to provide a cost-effective climate policy package in China. First, by using provincial data and wind and solar power as examples, it calculates the implicit carbon prices that FITs generate in different Chinese provinces and finds that they are much higher than current carbon prices in the pilot ETS. This shows the necessity of using both instruments to guarantee current level incentives to develop REN for climate change purposes, at least in the short and medium terms. Second, by keeping the annual total carbon price level stable (the sum of the implicit FIT carbon price and the ETS carbon price), and taking into account the cost evolution of REN development, this article demonstrates, for the 2018–2020 period, that FIT should decrease at an annual rate of 3.04–4.63% (for wind) and 7.84–8.87% (for solar) based on different growth rates for progressive national ETS carbon prices.Policy relevanceThere are a number of studies and debates on the interactions between climate policies in Europe in particular, ETS and subsidies for REN. The key issue is that a climate policy package should be cost-efficient and the implementation of one policy should not jeopardise the performance of another. For a country like China, a considerable scale effect on climate target achievement and total cost savings could be produced by the careful design of the climate policy package. FIT and ETS, which are cost-efficient policies if implemented separately, will very probably constitute a major climate policy package in the future in China, which is aiming to limit the use of command-and-control policies. So far, there is some debate on how to reduce FIT for wind power in China due to development cost changes. But discussions are lacking on the linkage between FIT and ETS. This paper fills this gap.

Power and Carbon Sovereignty in a Non-Traditional Capitalist State: Discourses of Carbon Trading in China

Carbon markets devolve governance to external institutions and displace power from sovereign states. Major producers in these markets, notably China, have expressed concern about the adverse implications for national interests and sovereignty associated with selling off the rights to emit carbon emissions abroad. This article suggests that such concern has shaped the discursive context in which emission trading schemes have gained popularity in the country. Our discourse analysis shows that notions of market power are made manifest as a powerful storyline. In the Chinese language, “power,” “sovereignty,” and “rights” all use the same character. The storyline captures all these expressions and allows for a positive view about active engagement in carbon trading as a way to protect development rights and redeem carbon sovereignty. Thus, the contested policy of emissions trading becomes embedded in the more appealing narrative of national development and made politically attractive, despite unfavorable realities against it.

Challenges to the development of carbon markets in China

China has introduced several pilot emission trading schemes to build the basis for a national scheme. The potential scale of this initiative raises prospects for a regional carbon trading network as a way to further engage other major Asian economies. However, the Chinese carbon markets rest upon a unique political-economic context and institutional environment that are likely to limit their development and viability. This article offers an overview of such structural economic and political constraints. Four main challenges are identified, namely, inadequate domestic demand, limited financial involvement, incomplete regulatory infrastructure, and excessive government intervention. The first two challenges concern economic dimensions and may be partially addressed by the incentives created by the newly introduced emission trading schemes. The other two are more deeply entrenched in the dominant political system and governing practice. They require fundamental changes to the ways in which the state and the market interact. The success of China's carbon market reform depends crucially on the ability of the ongoing efforts to transform the distorted state–market relationship.Policy relevanceThe burgeoning carbon markets offer opportunities for emissions mitigation at lower costs and enable circulation of a new form of capital, i.e. carbon credits, across borders. China accounts for a gigantic share of global GHG emissions and has the potential to significantly scale up these opportunities. There are clear implications for market developers and participants worldwide, including climate policy makers who attempt to link their emission trading schemes to other schemes, firms who seek to take advantage of the inexpensive carbon offsets generated in developing countries, international financial institutions who endeavour to establish their business in an emerging major carbon market, etc. This article can inform their decisions by identifying key issues that may undermine their ability to achieve these goals. Policy makers and stakeholders will benefit from this analysis, which shows how the Chinese carbon markets operate in ways that may be different from their experience elsewhere.

Estimating the Marginal Abatement Cost of Carbon Emissions: A Non-Radial Efficiency Analysis

This paper employed a non-radial efficiency analysis technique, namely slacks-based measure, to calculate the marginal abatement cost of carbon emissions. The study was concerning ten manufacturing sectors that have been included in Shanghai’s pilot emission trading scheme. The empirical result shows the overall weighted average marginal abatement cost is 839.3 Yuan/ton. It also indicates that the marginal abatement cost has a negative relationship with carbon emissions. Additionally, the marginal abatement costs vary across the sample sectors. Policy implications are presented based on above results.

Chinese business at the dawn of its domestic emissions trading scheme: incentives and barriers to participation in carbon trading

This article explores the incentives and challenges for Chinese business companies in participating in carbon emissions trading schemes (ETSs). Based on extensive interviews with the business managers and government officers who are currently involved in the ongoing policy experiments of pilot ETS programmes across China, the article identifies factors that either motivate or discourage companies in participating in carbon trading activities. It argues that different business groups, i.e. capped enterprises, uncapped enterprises, and carbon intermediaries, are affected by these factors to significantly different extents in terms of formulating their specific carbon strategies. It also illustrates some factors, such as a lack of stakeholder pressure and fragmented political interests, which have a distinctive Chinese character and are believed will have a fundamental impact on the quality and efficiency of Chinese ETSs in the future.Policy relevanceAt the outset, the successful implementation of any ETS depends critically on the active involvement of business actors across various industries. Hence, having an understanding of the business incentives and obstacles in participating in carbon trading is crucial, as these factors will ultimately determine the size and quality of the carbon market, and the total volume and integrity of the GHG emissions to be traded. This article also illustrates the common factors that affect business appetite for carbon trading throughout the world, as well as the factors that are unique to the Chinese political and economic context to constrain business in the market. Finally, a presentation of the business attitude towards the ETS experiment indicates the most worrying aspects of the policy design regarding carbon trading in China. As the construction and implementation of the ETS is a long-term undertaking, such investigation deserves attention from both policy makers and business leaders alike.

Regional Pilot Carbon Emissions Trading and its Prospects in China

As the world's largest CO2 emitting country, China may become the largest carbon trading market in the future. While building an emissions trading scheme (ETS) is becoming one of the major policies being adopted to reduce CO2 emissions in most developed countries, the government of China has declared and implemented regional pilot emissions trading schemes in seven municipalities and provinces. This study reviews the history of the emissions trading policy and discusses the lessons learned. From an economic perspective, we further estimate the potential structure of the pilot jurisdictions in China, including overall trading emissions, the number of enterprises included, and the industrial structure across the pilot ETSs. It is speculated that challenges arise from the inherent size and highly-concentrated industrial structure of the pilot ETSs. Inter-pilot trading and regulatory harmonization are necessary to boost trading and liquidity in the future.

Emission Trading Scheme and Feed-in Tariff Policy in China: Alternative or Integrated?

In 2013, China launched its domestic pilot Emission Trading Scheme (ETS) as a cost-effective strategy for reducing carbon dioxide emissions. ETS generates carbon prices that interact with the Feed-in Tariff (FIT) policy applied to renewable energies (REN). This paper discusses whether ETS and FIT policies should be mutually exclusive or integrated packages for achieving China's carbon and renewable energy targets, using wind and solar energy as examples. We use equivalent CO2 price as an indicator to assess whether ETS could replace FIT policy at the provincial level. The results show that ETS alone is unlikely to provide sufficient incentive for REN development in China. ETS and FIT policy should be integrated but with coordination to avoid cost-ineffectiveness. Our model predicts that FIT levels should decrease by 3.04–4.63 percent (for wind) and 7.84–8.87 percent (for solar) from 2015 to 2020 if a national ETS commences in 2018.