Emission rights futures trading model for synergetic control of regional air pollution and adverse health effects

Finding ways to utilize financial instruments for controlling regional air pollution while lowering its costs and adverse health effects, and stimulating neighboring areas to participate in the joint control strategy has become a global concern. Here, an emission rights futures trading (ERFT) model was established by combining futures trading with emission rights. It consists of four sub-models, which are sequentially the market classification model, the buyer's and the seller's cooperative optimization models, and the cooperation benefits allocation model. The reduction of pollutants and the trading amount of emission rights futures for different roles (i.e., buyers and sellers) can be firstly optimized by utilizing the former three sub-models, so as to obtain the total cooperation benefits. Then, aiming at encouraging the cooperation between different partners, the cooperation benefits are distributed through the fourth model. To further demonstrate the validity of the ERFT model, it was applied to reduce SO2 in the Beijing-Tianjin-Hebei region as a case study. Results showed that it had two significant advantages over the non-cooperative reduction strategy (NCRS): the ERFT model would save about 57,012 more lives (a 0.822% increase compared to the NCRS) and reduce costs by US$ 4.778 x 109 (0.825% reduction compared to the NCRS). A sensitivity analysis showed that the ERFT model were relatively insensitive to changes in the values of the main parameters. Therefore, the ERFT model can effectively solve the problems of low efficiency, high cost and great adverse health effects of the NCRS. Whereas, a flexible and diversified ERFT market and corresponding policies should be proposed so that the ERFT can be fully implemented.

Automated summary

This study established an emission rights futures trading (ERFT) model, which optimized the reduction of pollutants and the trading amount of emission rights futures for different roles, obtained cooperation benefits, and distributed them through a cooperation optimization model to encourage cooperation between different partners.