Going to the Source: Using an Upstream Point of Regulation for Energy in a National Chinese Emissions Trading System

Motu Working Paper 14-09

25 Pages Posted: 2 Oct 2014

See all articles by Suzi Kerr

Suzi Kerr

Motu Economic and Public Policy Research Trust

Vicki Duscha

Fraunhofer Institut für Systemtechnik und Innovationsforschung

Date Written: September 30, 2014

Abstract

There are many choices within the design of an emissions trading system. In this paper we focus on one specific aspect – the point of regulation for the energy sector. This choice affects transaction costs; comprehensiveness, and hence the amount of emissions covered and the extent to which the potential cost-effectiveness gains are realised; and credibility of the system. We discuss how an “upstream” energy sector emissions trading system works and present arguments for going upstream (in particular, simplicity of administration) while also discussing arguments for other points of regulation in light of the Chinese circumstances. We present experiences with the New Zealand system, the only system that is entirely upstream for energy, showing ways to address issues that may arise with an upstream system. Ultimately the success of emissions trading depends on markets that operate in a relatively free and competitive way. Simply copying others’ systems to the context of a largely controlled economy such as the Chinese one is likely to be ineffective; each system must be uniquely tailored to local circumstances, possibly in China more than ever before.

Keywords: Emissions trading scheme, point of regulation, upstream, energy sector, China, New Zealand

JEL Classification: Q54, Q56, Q58, Q48, H23

Suggested Citation

Kerr, Suzi and Duscha, Vicki, Going to the Source: Using an Upstream Point of Regulation for Energy in a National Chinese Emissions Trading System (September 30, 2014). Motu Working Paper 14-09. Available at SSRN: https://ssrn.com/abstract=2503721 or http://dx.doi.org/10.2139/ssrn.2503721

Suzi Kerr (Contact Author)

Motu Economic and Public Policy Research Trust ( email )

Level 1, 93 Cuba Street
P.O. Box 24390
Wellington, 6142
New Zealand
+64 4 383 4250 (Phone)
+64 4 383 4270 (Fax)

Vicki Duscha

Fraunhofer Institut für Systemtechnik und Innovationsforschung ( email )

Breslauer Str. 48
Karlsruhe, 76139
United States

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