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Designing an Emissions Trading Scheme for China – An Up-to-date Climate Policy Assessment

Author

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  • Michael Hübler
  • Sebastian Voigt
  • Andreas Löschel

Abstract

We assess recent Chinese climate policy proposals in a multi-region, multi-sector computable general equilibrium model with a Chinese carbon emissions trading scheme (ETS). We conduct a quantitative assessment of the Chinese emissions trading scheme (ETS) with the help of PACE (Policy Analysis based on Computable Equilibrium). PACE is a multi-sector, multi-region computable general equilibrium (CGE) model of global production, consumption, trade and energy use which is calibrated for the year 2005 proceeding in five-year time steps until the year 2030. The model is recursive dynamic, this means, it is solved for a sequence of global market equilibria. The equilibria are connected via investments and other exogenous drivers of economic growth. The benchmark data for the year 2004/2005 are taken from the GTAP 7 data base (Global Trade Analysis Project; Badri and Walmsley, 2008). Data for the dynamic business-as-usual (BAU) calibration until 2030 are taken from IEO (2008/2010). IEO (2008/2010) provides detailed regional data on fuel-specific primary energy consumption and carbon emissions. Pricing of carbon emissions with the help of an ETS results in macroeconomic effects (welfare, GDP, net exports etc.) and sectoral effects (output reductions). When the emissions intensity per GDP in 2020 is required to be 45% lower than in 2005, the model simulations indicate that the climate policy- induced welfare loss in 2020, measured as the level of GDP and welfare in 2020 under climate policy relative to their level under business-as-usual (BAU) in the same year, is about 1%. The Chinese welfare loss in 2020 slightly increases in the Chinese rate of economic growth in 2020. When keeping the emissions target fixed at the 2020 level after 2020 in absolute terms, the welfare loss will reach about 2% in 2030. If China’s annual economic growth rate is 0.5 percentage points higher (lower), the climate policy-induced welfare loss in 2030 will rise (decline) by about 0.5 percentage points. When imposing a laxer 40% intensity target, the losses will decline to 1.7% in 2030. Full auctioning of carbon allowances results in very similar macroeconomic effects as free allocation, but the results differ significantly at the sector level. Linking the Chinese to the European ETS and restricting the transfer volume to one third of the EU’s reduction effort creates at best a small benefit for China, yet with smaller sectoral output reductions than auctioning. These results highlight the importance of designing the Chinese ETS wisely.

Suggested Citation

  • Michael Hübler & Sebastian Voigt & Andreas Löschel, 2014. "Designing an Emissions Trading Scheme for China – An Up-to-date Climate Policy Assessment," EcoMod2014 6775, EcoMod.
    • Handle: RePEc:ekd:006356:6775
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    More about this item

    Keywords

    People's Republic of China; General equilibrium modeling (CGE); Impact and scenario analysis;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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