Journal
SUSTAINABLE PRODUCTION AND CONSUMPTION
Volume 32, Issue -, Pages 690-699Publisher
ELSEVIER
DOI: 10.1016/j.spc.2022.05.021
Keywords
Emissions trading scheme; Marginal abatement cost; Allowance allocation rule
Funding
- Department of Education of Hubei Province [21Y179]
- National Social Science Foundation of China [18ZDA107]
- National Natural Science Foundation of China [71834005, 71603191]
- Research Grant Council of Hong Kong [CityU 11612620]
- CityU Internal Funds [9610386 ,9229069]
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This study investigates the impact of China's carbon emission trading scheme (CETS) on marginal abatement cost (MAC) from the perspective of alternative allowance allocation methods. The findings reveal that CETS has a significant influence on the cost-effectiveness of regulated industrial sectors, and different allocation methods have varying effects on MAC.
Emission trading schemes (ETSs) are regarded as cost-effective environmental regulatory policies; however, because of the loose carbon allowances, it is up for debate whether China's carbon emission trading scheme (CETS) plays a cost-effective role in carbon emission reduction. This paper investigates how the marginal abatement cost (MAC) is changed by the China CETS from a perspective of alternative allowance allocation methods. The empirical strategy adopts the directional distance function and difference-in-difference (DID) analysis, coupled with the industry-by-province level data from 2008 to 2016. The roles of free-auction combined allowance allocation rules and free allocation in the MAC are explored. Furthermore, the heterogeneous effects of adopted free allocation in CETS, i.e., benchmarking (BENCH), emission-based grandfathering (EGRAND), and intensity-based grandfathering (IGRAND) on MAC of industries are investigated. The empirical findings disclose the following. First, China CETS results in an 8% decline in MAC for the regulated industrial sectors in pilot areas. Second, regulated industrial sectors allocated carbon allowances by free rule decrease their MAC by approximately 1%, while those allocated carbon allowances by free-auction combined rule increase their MAC by 11%. Meanwhile, of the free allocation alternatives, IGRAND causes a 24% increase in the MAC, while EGRAND and BENCH allocation methods lead to insignificant changes in the MAC for the regulated industrial sectors. (C) 2022 Published by Elsevier Ltd on behalf of Institution of Chemical Engineers.
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