Why do we suggest small sectoral coverage in China’s carbon trading market?

• Published in: Journal of cleaner production Vol. 257; p. 120557
• Main Authors: Lin, Boqiang, Jia, Zhijie
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.06.2020
• Subjects: business enterprises; carbon; carbon markets; Carbon trading market; cement; China; Computable general equilibrium model; electric power; Emission trading scheme; emissions; energy efficiency; industry; monitoring; motivation; Sectoral coverage; China; Carbon trading market; Sectoral coverage; Computable general equilibrium model; Emission trading scheme; China
• ISSN: 0959-6526; 1879-1786
• DOI: 10.1016/j.jclepro.2020.120557

The coverage of Emission Trading Scheme (ETS) has been widely discussed. Based on the plans of the various stages of the National Development and Reform Commission in China, we explore the different impacts of different plans by applying recursive dynamic computable general equilibrium. What we found is different. Covering more industries, carbon prices will be lower so that the emission reduction motivation of each covering enterprises will be reduced. However, the resource attributes of carbon emission allowance will gradually emerge. In general, we found that the changes in the sectoral coverage will bring about the changes in the two effects in ETS market: carbon price effect and the allocation effect. The interaction of the two effects has led to a positive impact of both low-coverage and high-coverage on reducing emissions and improving the energy efficiency. This paper suggests that just covering three enterprises that are easy-to-MRV (monitoring, reporting, and verification) is enough for emissions reduction: cement, chemical and electric power, which can also achieve high emission reduction efficiency and can effectively reduce supervision cost. •A dynamic recursive CGE model is established in this paper.•There are two effects in ETS market: carbon price effect and the allocation effect.•Reduction efficiency is an inverted U-shaped curve to the changes of coverage.•Cement, chemical and electricity are encouraged to participate in ETS.