China has embarked on an ambitious pathway for establishing a national carbon market in the next 5–10 years. In this study, we analyze the distributional aspects of a Chinese emissions-trading scheme from ethical, economic, and stated-preference perspectives. We focus on the role of emissions permit allocation and first show how specific equity principles can be incorporated into the design of potential allocation schemes. We then assess the economic and distributional impacts of those allocation schemes using a computable general equilibrium model with regional detail for the Chinese economy. Finally, we conduct a survey among Chinese climate-policy experts on the basis of the simulated model impacts. The survey participants indicate a relative preference for allocation schemes that put less emissions-reduction burden on the western provinces, a medium burden on the central provinces, and a high burden on the eastern provinces. Most participants show strong support for allocating emissions permits based on consumption-based emissions responsibilities.
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The trade in emissions permits allows emissions to be reduced at least cost, while the initial allocation of emissions permits determines the regional distribution of this cost burden.
Policies in that regard are e.g., the “Western development strategy” and the “Rise of central China strategy” in the 1990s and 2000s.
Following Feng et al. (2012), we group Guangxi as a western province due to its economic similarities with western provinces. Although Inner Mongolia is sometimes also grouped as a western province, we group it as a central province, which is in line with its economic characteristics and with the grouping described by the State Council of China (1986).
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The outcome-based allocation scenarios (vertical and horizontal) depart from this methodology because they impose constraints on the outcome of economic model simulations. The horizontal EQU scenario equalizes the proportional welfare impacts across all provinces and the vertical PRG scenario distributes welfare losses in proportion to per-capita GDP. The details of the economic model and the model simulations are described in Section 3.
The energy goods include coal (COL), crude oil (CRU), refined-oil and coal products (OIL), natural gas (GAS), gas manufacture and distribution (GDT), and electricity (ELE); the non-energy sectors include agriculture (AGR), minerals mining (OMN), light industries (LID), energy-intensive industries (EID), transport equipment (TME), other manufacturing industries (OID), water (WTR), trade (TRD), transport (TRP), other service industry (OTH).
In particular the EQU (equal welfare losses imposed across all provinces) may not have been well understood by survey respondents, given that it is based on a theoretical construct and not on a tangible indicator or indicators, which have been used to guide the setting of China’s energy and climate policy to date.
An added benefit is that the market-based nature of those flows may make them more robust and predictable than budgetary government transfers which have been subject to fluctuation in the past (Shen et al., 2012). However, a market-based scheme also means that the magnitude of the interregional flows will be subject to fluctuations in the carbon price.
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We greatly thank the survey respondents and those who facilitated the distribution of the survey, in particular Prof. Libo Wu at Fudan University. We also thank Dr. John Reilly at MIT and Dr. Cyril Cassisa at Tsinghua University for helpful comments on the survey design. The authors gratefully acknowledge the support of Eni S.p.A., the French Development Agency (AFD), ICF International, and Shell International Limited, founding sponsors of the China Energy and Climate Project, as well as the AXA Research Fund, which is supporting Marco Springmann's doctoral research. We are also grateful for support provided by the Ministry of Science and Technology of China (Grant No. 2012BAC20B07) and Rio Tinto. We further thank the MIT Joint Program on the Science and Policy of Global Change for support through a consortium of industrial sponsors and Federal grants.
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Zhang, D., Springmann, M. & Karplus, V.J. Equity and emissions trading in China. Climatic Change 134, 131–146 (2016). https://doi.org/10.1007/s10584-015-1516-x
- Allocation Scheme
- Marginal Abatement Cost
- Eastern Province
- Western Province
- Computable General Equilibrium Model