The emissions trading scheme (ETS) has been an essential measure of greenhouse gas emissions reduction to limit ongoing global warming, considering its cost effectiveness. As the country with the greatest energy consumption and CO2 emissions globally, China has offered series of initiatives to contribute to global efforts in curbing climate change. In its Intended Nationally Determined Contribution (INDC), submitted by the Chinese government to the Secretariat of the United Nations Framework Convention on Climate Change (UNFCCC) in June 2015, Chinese government sets a goal of reducing its carbon intensity by 60—65% below 2005 levels, and has further declared to reach its CO2 emissions peak by 2030. To achieve these goals, the ETS has been selected as the main climate policy to reduce emissions in the long term in China. It was first introduced in seven pilots at provincial and city level since 2013, and a nationwide carbon market is to be implemented in China in 2017. The marginal abatement cost, which describes the additional cost per unit of extra reduction of CO2, provides an important basis for the emissions trading market. By compasion of marginal abatement cost and the carbon price, the decision makers of emissions trading sectors need to decide whether to reduce the emissions themselves or buy allownces from the carbon market. The marginal abatement cost curses are usually assumed the same during different decision situation. However, the non-consideration of various types of interdependencies, intersectoral, and macroeconomic interactions brings uncertainty in quantifying of marginal abatement costs. This would in turn affect the efficiency of decision by decision makers in carbon market and further lead to different economic impacts at both regional and national levels in China. Against this background, a China multi-regional computable general equilibrium (CGE) model will be introduced in this study and the relationship of different ETS designs and marginal abatement cost according to different sectors in regions will be investigated. Policy implications will be proposed finally.
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