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

Author

Listed:
  • Lawrence H. Goulder
  • Xianling Long
  • Chenfei Qu
  • Da Zhang
Abstract
China’s recently launched CO2 emissions trading system, already the world’s largest, aims to contribute importantly toward global reductions in greenhouse gas emissions. The system, a tradable performance standard (TPS), differs importantly from cap and trade (C&T), the principal emissions trading approach used in other countries. This paper presents the structure and results from a multi-sector, multi-period equilibrium model tailored to evaluate China’s TPS. The model incorporates distinctive features of China’s economy, including state-owned enterprises and electricity market regulation. It distinguishes between the TPS and C&T and considers a wide range of potential future TPS designs. Key findings include the following. The TPS’s environmental benefits exceed its costs by a factor of five when only the climate-related benefits are considered and by a significantly higher factor when health benefits from improved air quality are included. The TPS’s interactions with China’s fiscal system substantially affect its costs relative to those of C&T. Employing a single benchmark (standard) for the electricity sector would lower costs by 34 percent relative to the four-benchmark system that is actually in place 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 economy-wide costs by at least 30 percent.

Suggested Citation

  • Lawrence H. Goulder & Xianling Long & Chenfei Qu & Da Zhang, 2023. "China’s Nationwide CO2 Emissions Trading System: A General Equilibrium Assessment," NBER Working Papers 31809, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31809
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    References listed on IDEAS

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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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