China’s Nationwide CO2 Emissions Trading System: A General Equilibrium Assessment
This working paper offers a dynamic general equilibrium assessment of China's tradable performance standard for carbon dioxide emissions.
Abstract
China’s recently launched CO2 emissions trading system, already the world’s largest, aims to contribute importantly to global reductions in greenhouse gas emissions. The system, a tradable performance standard (TPS), differs importantly from cap and trade (C&T), the principal approach used in other countries. We offer a dynamic general equilibrium assessment of this new venture, employing a model that uniquely considers institutional and fiscal features of China’s economy that influence economy-wide policy costs and distributional impacts.
Key findings include the following. The TPS’s environmental benefits exceed its costs by a factor of five when only the climate benefits are considered and by a significantly higher factor when health benefits from improved air quality are included. Its interactions with China’s fiscal system substantially affect its costs relative to those of C&T. Employing a single benchmark for the electricity sector would lower costs by over a third relative to the existing four-benchmark system but increase the standard deviation of percentage income losses across provinces by more than 60 percent. Introducing an auction as a complementary source of allowance supply can lower economywide costs by at least 30 percent.
Authors
Xianling Long
Peking University
Chenfei Qu
Tsinghua University
Da Zhang
Tsingua University
