First-of-its-Kind Study Evaluates China’s New Nationwide CO2 Emissions Pricing System
Assessing the cost-effectiveness and distributional consequences of China’s new nationwide CO2 emissions pricing system
WASHINGTON, DC—Resources for the Future (RFF) will release on Tuesday a comprehensive, first-of-its-kind assessment of a new nationwide emissions pricing mechanism that China is adopting to reduce its CO₂ emissions. The policy will more than double the CO₂ emissions covered by emissions pricing worldwide. Coauthors Lawrence Goulder and Richard Morgenstern will host a press call today at 10:30 a.m. EST to discuss their findings and answer questions about this significant, nuanced policy. Please email [email protected] to RSVP. The press call will begin with a 5-minute overview of the paper and findings, followed by time for Q&A.
The study offers the first detailed assessment of the emissions reductions and economic impacts from the new program. The program employs a tradable performance standard (TPS), a mechanism that differs significantly from the cap-and-trade programs more commonly used around the world. The study finds that the policy will have environmental benefits three times larger than the economic costs (under a central-case scenario with a $44-per-ton value on emissions reductions).
“The introduction of this economy-wide CO₂ pricing program is a major advance in China's efforts to reduce CO₂ emissions," states Goulder.
The study reveals both attractions and limitations of a TPS relative to a cap-and-trade system. Important attractions include the fact that the policy will have less impact on electricity prices and, therefore, result in less emissions “leakage.” The study also describes how the TPS can respond more flexibly than cap and trade to business-cycle fluctuations. However, the authors do find that this policy will likely be somewhat less cost-effective than a cap-and-trade program with similar emissions reductions.
Morgenstern points out that "the policy will produce significant benefits relative to its costs, even though it may be somewhat less cost-effective than a similar cap-and-trade program.”
This study, “China’s Unconventional Nationwide CO₂ Emissions Trading System: The Wide-Ranging Impacts of an Implicit Output Subsidy,” was also published as a National Bureau of Economic Research working paper.
Learn more about China’s proposed policy and its impacts—read the paper here.
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