Designing the nationwide emission trading scheme in China

Abstract

Emission trading scheme (ETS) is popular to abate anthropogenic emissions throughout the world. Previous researchers focused on evaluating ETS policy effect, but ETS design is usually neglected because ETS is already mostly sophisticated worldwide. This is not the case in China, as the Chinese nationwide ETS (CNETS) came into effect in July 2021. Implemented for a brief period, the CNETS lacks implementation details and thus may not achieve mitigation targets cost-effectively. In this paper, we attempt to narrow the research gap by comprehensively designing the CNETS. Our research framework is based on a dynamic recursive computable general equilibrium (CGE) model. The CGE model results show that the appropriate CNETS should include the coverage of the electricity generation and manufacturing sectors, higher carbon price (175 ${CNY} / {t} {CO}_2$), quota allocation based on the carbon intensity in the previous year, higher quota decline factor (2%) and time-decreasing free quota ratio. Although we have only designed the Chinese ETS in this paper, the research framework may become a paradigm of designing appropriate ETS.