Designing an Emissions Trading Scheme for China – An Up-to-Date Climate Policy Assessment

51 Pages Posted: 21 Mar 2014

See all articles by Michael Hübler

Michael Hübler

Leibniz Universität Hannover

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics

Sebastian Voigt

ZEW – Leibniz Centre for European Economic Research

Date Written: March 15, 2014

Abstract

We assess recent Chinese climate policy proposals in a multi-region, multi-sector computable general equilibrium model with a Chinese carbon emissions trading scheme (ETS). When the emissions intensity per GDP in 2020 is required to be 45% lower than in 2005, the model simulations indicate that the climate policy-induced welfare loss in 2020, measured as the level of GDP and welfare in 2020 under climate policy relative to their level under business-as-usual (BAU) in the same year, is about 1%. The Chinese welfare loss in 2020 slightly increases in the Chinese rate of economic growth in 2020. When keeping the emissions target fixed at the 2020 level after 2020 in absolute terms, the welfare loss will reach about 2% in 2030. If China’s annual economic growth rate is 0.5 percentage points higher (lower), the climate policy-induced welfare loss in 2030 will rise (decline) by about 0.5 percentage points. Full auctioning of carbon allowances results in very similar macroeconomic effects as free allocation, but full auctioning leads to higher reductions in output than free allocation for ETS sectors. Linking the Chinese to the European ETS and restricting the transfer volume to one third of the EU’s reduction effort creates at best a small benefit for China, yet with smaller sectoral output reductions than auctioning. These results highlight the importance of designing the Chinese ETS wisely.

Keywords: China, climate policy, ETS, linking, CGE

JEL Classification: C68, Q54, Q56

Suggested Citation

Hübler, Michael and Löschel, Andreas and Voigt, Sebastian, Designing an Emissions Trading Scheme for China – An Up-to-Date Climate Policy Assessment (March 15, 2014). ZEW - Centre for European Economic Research Discussion Paper No. 14-020, Available at SSRN: https://ssrn.com/abstract=2411970 or http://dx.doi.org/10.2139/ssrn.2411970

Michael Hübler (Contact Author)

Leibniz Universität Hannover ( email )

Institute f. Environm. Economics and World Trade
Koenigsworther Platz 1
30167 Hannover, DE 30167
Germany

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics ( email )

Universitätsstr. 14-16
48143 Munster
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/eroe

Sebastian Voigt

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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