China's emissions trading system and green performance: Based on the agent-based stock-flow consistent model

Emissions Trading System (ETS) is a prominent means to achieve carbon emission reduction. Many countries are operating or building the Carbon Emissions Trading Market to optimize economic and environmental benefits. However, there are interactions among national industrial structures. This makes the effects of ETS schemes unpredictable. How to build an ETS that takes into account both effectiveness and efficiency for China has become a key and urgent issue. Based on the reality of China's industrial growth and market construction, this paper sorts out the logical structure of China's ETS, focusing on the power sector as its primary component. An Agent-based Stock-flow Consistent Model including four sector types is developed to systematically analyze the ETS schemes. Simulation results from four distinct ETS schemes show that: (1) From the perspective of system structure, the current China's ETS exhibits institutional and regulatory deficiencies, particularly in policy design and the operationalization of its cap-and-trade framework. The "Porter Effect" hypothesis cannot be realized. (2) From the perspective of scheme effectiveness, implementing schemes that reduce emission benchmark and carbon offset can better achieve both economic and environmental benefits across all time horizons. In addition, the schemes to increase carbon offset, allowance auction, and penalties for exceeding the emission benchmark have certain favorable effects in the short or the long term. It provides decision-making reference for China to build an ETS and form an optimal policy mix.