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Capacity Permit Trading Scheme, Economic Welfare And Energy Insecurity: Case Study Of Coal Industry In China

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  • XUNPENG SHI

    (Australia-China Relations Institute, University of Technology Sydney, Ultimo, NSW 2007, Australia†School of Low Carbon Economics, Hubei University of Economics, Wuhan, Hubei, P. R. China‡Center of Hubei Cooperative Innovation for Emissions Trading System, Hubei University of Economics, Wuhan, Hubei, P. R. China§Energy Studies Institute, National University of Singapore, Singapore 119620, Singapore∥Center for Energy and Environmental Policy Research, Beijing Institute of Technology, Beijing 100081, P. R. China)

  • YIFAN SHEN

    (#xB6;Institute of Politics and Economics, Nanjing Audit University, Nanjing, Jiangsu, P. R. China)

  • KE WANG

    (#x2225;Center for Energy and Environmental Policy Research, Beijing Institute of Technology, Beijing 100081, P. R. China**School of Management and Economics, Beijing Institute of Technology, Beijing 100081, P. R. China††Sustainable Development Research Institute for Economy and Society of Beijing, Beijing Institute of Technology, Beijing 100081, P. R. China‡‡Beijing Key Laboratory of Energy Economics and Environmental Management, Beijing Institute of Technology, Beijing 100081, P. R. China§§Department of Geographical Sciences, University of Maryland, College Park, MD 20742, USA)

  • YANFANG ZHANG

    (#xB6;¶School of Management, China University of Mining and Technology Xuzhou, Jiangsu 221116, P. R. China)

Abstract

Cutting the overcapacity in coal industry is a current critical issue in China and is a matter for the world. However, inappropriate capacity cut policies may induce huge fluctuations of energy price, creating a threat to energy security and even economic stability. This paper designs a capacity permit trading scheme to minimize the compliance cost of production capacity cut, and proposes the operational details of capacity permit trading scheme using China’s coal industry as an example. We also construct a simple partial equilibrium model to examine the benefits and firm behaviors when adopting the permit trading scheme. The results demonstrate that the permit trading scheme will generate an overall positive social welfare as well as reduce firms’ cheating incentives. The results confirm that the more heterogeneous the firms are in terms of compliance costs, the higher will be the social welfare gains and the trade volume. Our findings show that the proposed permit trading scheme is feasible and beneficial in achieving the capacity cut target in China.

Suggested Citation

  • Xunpeng Shi & Yifan Shen & Ke Wang & Yanfang Zhang, 2021. "Capacity Permit Trading Scheme, Economic Welfare And Energy Insecurity: Case Study Of Coal Industry In China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 66(02), pages 369-389, March.
    • Handle: RePEc:wsi:serxxx:v:66:y:2021:i:02:n:s0217590819500589
    DOI: 10.1142/S0217590819500589
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    Cited by:

    1. Zhang, Yanfang & Shi, Xunpeng & Qian, Xiangyan & Chen, Sai & Nie, Rui, 2021. "Macroeconomic effect of energy transition to carbon neutrality: Evidence from China's coal capacity cut policy," Energy Policy, Elsevier, vol. 155(C).
    2. Ayaz, Muhammad & Jehan, Noor & Nakonieczny, Joanna & Mentel, Urszula & uz zaman, Qamar, 2022. "Health costs of environmental pollution faced by underground coal miners: Evidence from Balochistan, Pakistan," Resources Policy, Elsevier, vol. 76(C).
    3. Liping Liao & Chukun Huang & Minzhe Du, 2022. "The Effect of Energy Quota Trading on Energy Saving in China: Insight from a Quasi-Natural Experiment," Energies, MDPI, vol. 15(22), pages 1-17, November.

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