Efficiency or Equity? Simulating the Carbon Emission Permits Trading Schemes in China Based on an Inter-Regional CGE Model

29 Pages Posted: 4 Mar 2016

See all articles by Libo Wu

Libo Wu

Fudan University - School of Economics

Weiqi Tang

Fudan University - School of Economics

Date Written: May 1, 2015

Abstract

Energy conservation and greenhouse gas (GHG) abatement have been included in the national development strategy of China. However, the rigidity in command-and-control mechanisms and arbitrariness in assignment of GHG abatement burden across regions have caused unnecessary losses in both economic efficiency and social equity. In this paper, we use an Inter-Regional Dynamic CGE (IRD-CGE) model to simulate economic and welfare impacts of climate policies on national and regional level, including carbon intensity targets, regional emission constraints and cap-and-trade mechanism. Comparison among alternative emission reduction policy mechanisms indicates that emission trading scheme can not only moderate the economic and social welfare losses, but also improve social equity by decoupling the allocation of emission permits from economic optimization of emission reduction scheme. From this perspective, emissions trading bridges the concerns for economic efficiency and social equity, since emission permits could be reallocated as an income transfer so as to promote inter-regional equity, while economic efficiency is maintained.

Keywords: Greenhouse gas emissions; energy conservation;emission reduction; pollution; cap-and-trade mechanism

JEL Classification: Q54, Q56

Suggested Citation

Wu, Libo and Tang, Weiqi, Efficiency or Equity? Simulating the Carbon Emission Permits Trading Schemes in China Based on an Inter-Regional CGE Model (May 1, 2015). CCEP Working Paper 1505, May 2015. Crawford School of Public Policy, The Australian National University. Available at SSRN: https://ssrn.com/abstract=2741286 or http://dx.doi.org/10.2139/ssrn.2741286

Libo Wu (Contact Author)

Fudan University - School of Economics ( email )

Shanghai
China

Weiqi Tang

Fudan University - School of Economics ( email )

Shanghai
China

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