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Efficiency or Equity? Simulating the Carbon Emission Permits Trading Schemes in China Based on an Inter-Regional CGE Model

Author

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  • Libo Wu

    (School of Economics, Fudan University)

  • Weiqi Tang

    (School of Economics, Fudan University)

Abstract

Energy conservation and greenhouse gas (GHG) abatement have been included in the national development strategy of China. However, the rigidity in command-and-control mechanisms and arbitrariness in assignment of GHG abatement burden across regions have caused unnecessary losses in both economic efficiency and social equity. In this paper, we use an Inter-Regional Dynamic CGE (IRD-CGE) model to simulate economic and welfare impacts of climate policies on national and regional level, including carbon intensity targets, regional emission constraints and cap-and-trade mechanism. Comparison among alternative emission reduction policy mechanisms indicates that emission trading scheme can not only moderate the economic and social welfare losses, but also improve social equity by decoupling the allocation of emission permits from economic optimization of emission reduction scheme. From this perspective, emissions trading bridges the concerns for economic efficiency and social equity, since emission permits could be reallocated as an income transfer so as to promote inter-regional equity, while economic efficiency is maintained.

Suggested Citation

  • Libo Wu & Weiqi Tang, 2015. "Efficiency or Equity? Simulating the Carbon Emission Permits Trading Schemes in China Based on an Inter-Regional CGE Model," CCEP Working Papers 1505, Centre for Climate & Energy Policy, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:ccepwp:1505
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    References listed on IDEAS

    as
    1. Griffin, James M & Gregory, Paul R, 1976. "An Intercountry Translog Model of Energy Substitution Responses," American Economic Review, American Economic Association, vol. 66(5), pages 845-857, December.
    2. Zhang, Zhong Xiang, 1998. "Macroeconomic Effects of CO2 Emission Limits: A Computable General Equilibrium Analysis for China," Journal of Policy Modeling, Elsevier, vol. 20(2), pages 213-250, April.
    3. Pindyck, Robert S & Rotemberg, Julio J, 1983. "Dynamic Factor Demands and the Effects of Energy Price Shocks," American Economic Review, American Economic Association, vol. 73(5), pages 1066-1079, December.
    4. Garbaccio, Richard F. & Ho, Mun S. & Jorgenson, Dale W., 1999. "Controlling carbon emissions in China," Environment and Development Economics, Cambridge University Press, vol. 4(4), pages 493-518, October.
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    Cited by:

    1. Yanni Yu & Weijie Zhang & Ning Zhang, 2018. "The Potential Gains from Carbon Emissions Trading in China’s Industrial Sectors," Computational Economics, Springer;Society for Computational Economics, vol. 52(4), pages 1175-1194, December.
    2. Bin Ye & Jingjing Jiang & Lixin Miao & Dejun Xie, 2017. "Interprovincial allocation of China's national carbon emission allowance: an uncertainty analysis based on Monte-Carlo simulations," Climate Policy, Taylor & Francis Journals, vol. 17(4), pages 401-422, May.

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    More about this item

    Keywords

    greenhouse gas emissions; energy conservation; emission reduction; pollution; cap-and-trade mechanism;
    All these keywords.

    JEL classification:

    • 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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