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Buffer effect and price effect of a personal carbon trading scheme

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  • Fan, Jin
  • Wang, Shanyong
  • Wu, Yanrui
  • Li, Jun
  • Zhao, Dingtao

Abstract

PCT (personal carbon trading) is a downstream cap-and-trade scheme used to reduce carbon emissions from the household sector. It is argued that the PCT scheme could provide a buffer between the energy price and the total energy price, and thus energy demand remains stable. However these effects have never been verified. To fill in this gap in the literature, a price effect analysis is conducted. Firstly, a GUO (general utility optimization) model is proposed to obtain the general formulae of the price effect, substitution effect and income effect under the PCT scheme. Secondly, a specific version of the GUO model, namely a Cobb–Douglas utility function model, is employed to obtain the specific effect formulae to verify the buffer effect. Finally, a numerical example and a sensitive analysis are presented to demonstrate these effects. The results indicate that, under the PCT scheme, the total energy price and energy demand are less sensitive to the energy price changes. Thus, when energy prices fluctuate, the PCT scheme is capable of providing certainty in emissions reduction and is more effective than carbon taxes. On the basis of these results, implications of this research are discussed and suggestions for future research are provided.

Suggested Citation

  • Fan, Jin & Wang, Shanyong & Wu, Yanrui & Li, Jun & Zhao, Dingtao, 2015. "Buffer effect and price effect of a personal carbon trading scheme," Energy, Elsevier, vol. 82(C), pages 601-610.
  • Handle: RePEc:eee:energy:v:82:y:2015:i:c:p:601-610
    DOI: 10.1016/j.energy.2015.01.069
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    Cited by:

    1. Fan, Jin & Li, Jun & Wu, Yanrui & Wang, Shanyong & Zhao, Dingtao, 2016. "The effects of allowance price on energy demand under a personal carbon trading scheme," Applied Energy, Elsevier, vol. 170(C), pages 242-249.
    2. Li, Yao & Fan, Jin & Zhao, Dingtao & Wu, Yanrui & Li, Jun, 2016. "Tiered gasoline pricing: A personal carbon trading perspective," Energy Policy, Elsevier, vol. 89(C), pages 194-201.
    3. Xia, Yan & Tang, Zhipeng, 2017. "The impacts of emissions accounting methods on an imperfect competitive carbon trading market," Energy, Elsevier, vol. 119(C), pages 67-76.
    4. Fan, Jin & He, Haonan & Wu, Yanrui, 2016. "Personal carbon trading and subsidies for hybrid electric vehicles," Economic Modelling, Elsevier, vol. 59(C), pages 164-173.
    5. Jiang, Jingjing & Xie, Dejun & Ye, Bin & Shen, Bo & Chen, Zhanming, 2016. "Research on China’s cap-and-trade carbon emission trading scheme: Overview and outlook," Applied Energy, Elsevier, vol. 178(C), pages 902-917.
    6. repec:gam:jsusta:v:10:y:2018:i:3:p:605-:d:133585 is not listed on IDEAS

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