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Allocating Provincial CO2 Quotas for the Chinese National Carbon Program

Author

Listed:
  • Minxing Jiang
  • Bangzhu Zhu
  • Julien Chevallier
  • Rui Xie

Abstract

To deal with climate change at the lowest cost, China formally launched on December 19, 2017, its national carbon market, in which the initial CO2 quota allocation is one of the key issues. How should we allocate CO2 emissions reduction responsibilities among Chinese provinces, assuming that provinces will not or cannot trade these responsibilities amongst themselves? In this paper, we allocate CO2 quota from the perspective of cost minimization. First, we estimate the national CO2 marginal abatement cost (MAC) function and deduce the interprovincial MAC functions. Second, we build an allocation model with the nonlinear programming approach for cost minimization. Finally, we obtain the allocation results under the emissions reduction target by 2030. The results are as follows. (i) The national MAC was 134.3 Yuan/t (at the constant price of 1978) in 2011, with an overall upward trend from 1990 to 2011. (ii) The interprovincial MACs differ significantly and decline gradually from east to west. Hebei has the largest emissions reduction quota and Shandong has the largest emissions quota by 2030. (iii) Compared with other criteria of per capita, gross domestic product (GDP), grandfathering, and carbon intensity, the proposed approach is the most cost-effective in achieving the reduction target, with cost savings of 37.7%, 34.5%, 47.9%, and 33.87%, respectively.

Suggested Citation

  • Minxing Jiang & Bangzhu Zhu & Julien Chevallier & Rui Xie, 2018. "Allocating Provincial CO2 Quotas for the Chinese National Carbon Program," Working Papers 2018-010, Department of Research, Ipag Business School.
    • Handle: RePEc:ipg:wpaper:2018-010
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