China's Nationwide Co2 Emissions Trading System: A General Equilibrium Assessment

57 Pages Posted: 30 Oct 2023 Last revised: 30 Nov 2024

See all articles by Lawrence H. Goulder

Lawrence H. Goulder

Stanford University - Department of Economics; National Bureau of Economic Research (NBER); Resources for the Future

Xianling Long

Peking University

Chenfei Qu

Tsinghua University

Da Zhang

Tsinghua University

Date Written: October 2023

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.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Goulder, Lawrence H. and Long, Xianling and Qu, Chenfei and Zhang, Da, China's Nationwide Co2 Emissions Trading System: A General Equilibrium Assessment (October 2023). NBER Working Paper No. w31809, Available at SSRN: https://ssrn.com/abstract=4616877

Lawrence H. Goulder (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-723-3706 (Phone)
650-725-5702 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Resources for the Future

1616 P Street, NW
Washington, DC 20036
United States

Xianling Long

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, 100871
China

Chenfei Qu

Tsinghua University ( email )

Beijing, 100084
China

Da Zhang

Tsinghua University ( email )

Beijing, 100084
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
16
Abstract Views
272
PlumX Metrics