How can national ETS affect carbon emissions and abatement costs? Evidence from the dual goals proposed by China's NDCs

China has committed to goals of reducing its carbon intensity by 60%-65% in 2030 above the 2005 levels and peaking its carbon emissions by latest 2030. While a unified national emission trading scheme (ETS) has been recognized as the crucial instrument to fulfill these ambitious dual goals, its potential performance remains underexplored. This paper quantifies China's need for emission reduction under the dual goals in 2030 by setting three scenarios for peak emissions. Four initial allocation schemes of carbon emission allowance (CEA) are compared according to the emission abatement costs (EACs) of China and its 30 provinces. By estimating the provincial marginal abatement cost curves, China's ETS is simulated through a nonlinear programming aimed at minimizing its total EACs. We find that in achieving the dual goals it makes economic sense to operationalize the ETS that would reduce China's EACs by 61.41%-80.33% in 2016-2030, at a carbon price of 394.55-425.75 RMB per ton CO2. Peaking China's emissions in 2030 is the preferred choice that will trigger the largest GDP in 2016-2030. The historical responsibility scheme is recommended for the CEA allocation because of the lowest initial EACs without ETS. To allow more room for economic growth after China peaks emissions, there is a need for overfulfilling the goal of carbon intensity reduction by 2030, which is consistent with China's latest climate mitigation targets. This research not only highlights the role of ETS in realizing China's dual goals, but provides a scientific framework for evaluating the environmental policies towards multiple goals in a cost-effective manner.

Automated summary

This study quantifies China's emission reduction needs in 2030 and proposes that peaking China's emissions in 2030 is the optimal choice, which will drive the largest GDP in 2016-2030. By simulating an ETS, China can reduce its emission abatement costs, and it is recommended to use the historical responsibility scheme for the initial allocation of carbon emission allowances.