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China’s Nationwide CO2 Emissions Trading System: A General Equilibrium Assessment

Author

Listed:
  • Goulder, Lawrence H.

    (Resources for the Future)

  • Long, Xianling
  • Qu, Chenfei
  • Zhang, Da
Abstract
China’s recently launched CO2 emissions trading system, already the world’s largest, aims to contribute importantly to global reductions in greenhouse gas emissions. The system, a tradable performance standard (TPS), differs importantly from cap and trade (C&T), the principal approach used in other countries. We offer a dynamic general equilibrium assessment of this new venture, employing a model that uniquely considers institutional and fiscal features of China’s economy that influence economy-wide policy costs and distributional impacts.Key findings include the following. The TPS’s environmental benefits exceed its costs by a factor of five when only the climate benefits are considered and by a significantly higher factor when health benefits from improved air quality are included. Its interactions with China’s fiscal system substantially affect its costs relative to those of C&T. Employing a single benchmark for the electricity sector would lower costs by over a third relative to the existing four-benchmark system but increase the standard deviation of percentage income losses across provinces by more than 60 percent. Introducing an auction as a complementary source of allowance supply can lower economywide costs by at least 30 percent.

Suggested Citation

  • Goulder, Lawrence H. & Long, Xianling & Qu, Chenfei & Zhang, Da, 2024. "China’s Nationwide CO2 Emissions Trading System: A General Equilibrium Assessment," RFF Working Paper Series 24-02, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-24-02
    as

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    File URL: https://www.rff.org/documents/4387/WP_24-02.pdf
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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