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Does China emission trading scheme reduce marginal abatement cost? A perspective of allowance allocation alternatives

Publication ,  Journal Article
Peng, HR; Cui, J; Zhang, X
Published in: Sustainable Production and Consumption
July 1, 2022

Emission trading schemes (ETSs) are regarded as cost-effective environmental regulatory policies; however, because of the loose carbon allowances, it is up for debate whether China's carbon emission trading scheme (CETS) plays a cost-effective role in carbon emission reduction. This paper investigates how the marginal abatement cost (MAC) is changed by the China CETS from a perspective of alternative allowance allocation methods. The empirical strategy adopts the directional distance function and difference-in-difference (DID) analysis, coupled with the industry-by-province level data from 2008 to 2016. The roles of free-auction combined allowance allocation rules and free allocation in the MAC are explored. Furthermore, the heterogeneous effects of adopted free allocation in CETS, i.e., benchmarking (BENCH), emission-based grandfathering (EGRAND), and intensity-based grandfathering (IGRAND) on MAC of industries are investigated. The empirical findings disclose the following. First, China CETS results in an 8% decline in MAC for the regulated industrial sectors in pilot areas. Second, regulated industrial sectors allocated carbon allowances by free rule decrease their MAC by approximately 1%, while those allocated carbon allowances by free-auction combined rule increase their MAC by 11%. Meanwhile, of the free allocation alternatives, IGRAND causes a 24% increase in the MAC, while EGRAND and BENCH allocation methods lead to insignificant changes in the MAC for the regulated industrial sectors.

Duke Scholars

Published In

Sustainable Production and Consumption

DOI

EISSN

2352-5509

Publication Date

July 1, 2022

Volume

32

Start / End Page

690 / 699

Related Subject Headings

  • 4404 Development studies
  • 4104 Environmental management
  • 1604 Human Geography
  • 1402 Applied Economics
  • 0502 Environmental Science and Management
 

Citation

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Peng, H. R., Cui, J., & Zhang, X. (2022). Does China emission trading scheme reduce marginal abatement cost? A perspective of allowance allocation alternatives. Sustainable Production and Consumption, 32, 690–699. https://doi.org/10.1016/j.spc.2022.05.021
Peng, H. R., J. Cui, and X. Zhang. “Does China emission trading scheme reduce marginal abatement cost? A perspective of allowance allocation alternatives.” Sustainable Production and Consumption 32 (July 1, 2022): 690–99. https://doi.org/10.1016/j.spc.2022.05.021.
Peng HR, Cui J, Zhang X. Does China emission trading scheme reduce marginal abatement cost? A perspective of allowance allocation alternatives. Sustainable Production and Consumption. 2022 Jul 1;32:690–9.
Peng, H. R., et al. “Does China emission trading scheme reduce marginal abatement cost? A perspective of allowance allocation alternatives.” Sustainable Production and Consumption, vol. 32, July 2022, pp. 690–99. Scopus, doi:10.1016/j.spc.2022.05.021.
Peng HR, Cui J, Zhang X. Does China emission trading scheme reduce marginal abatement cost? A perspective of allowance allocation alternatives. Sustainable Production and Consumption. 2022 Jul 1;32:690–699.
Journal cover image

Published In

Sustainable Production and Consumption

DOI

EISSN

2352-5509

Publication Date

July 1, 2022

Volume

32

Start / End Page

690 / 699

Related Subject Headings

  • 4404 Development studies
  • 4104 Environmental management
  • 1604 Human Geography
  • 1402 Applied Economics
  • 0502 Environmental Science and Management