Efficiency of China's Carbon Trading Schemes Based on Bootstrap-Dea: A Tale of 7 Pilot Markets

Abstract

China’s carbon emission trading scheme (ETS) was launched in seven pilot regions in 2013. The purpose of this study is to evaluate the efficiency of China’s seven pilots’ ETS. Specifically, the overall, pure technical and scale efficiencies of the seven pilot ETS and their temporal dynamics in 2014-2018 are evaluated, and the determinant factors on the efficiency in different pilot carbon markets are systemically explored. An improved data envelopment analysis (DEA) model by integrating the bootstrap correction method (bootstrap-DEA) is used to solve the evaluation deviation of the traditional DEA model. Empirical results show the following. 1) The efficiency of China’s carbon trading market maintains a prominent ascend trend year by year. The average overall efficiency of the seven pilot markets increased from 0.6119 in 2014 to 0.7184 in 2018, and the average pure technical efficiency increased from 0.8444 to 0.9211. 2) There are remarkable differences in efficiency and transaction price of the seven pilot carbon markets in China. The average overall efficiency is distributed in 0.5962–0.8444. 3) All seven pilot carbon markets have some shortages. The main constraint effect on the efficiency of the carbon markets is the small-scale market transaction. Such a constraint effect is manifested by the pilot carbon markets’ average scale efficiency, which is only 0.7969. The innovation of this study is the introduction of the bootstrap-DEA model in the efficiency evaluation of ETS, which guarantees a more accurate efficiency estimation than the traditional DEA. This study provides quantifiable reference and concrete policy recommendations for policymakers to consummate the institutional designs to improve the ETS efficiency of China.

Keywords: Emission trading scheme (ETS), Efficiency evaluation, Bootstrap-DEA, Pure technical efficiency, Scale efficiency, China