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Emissions trading in China: Principles, design options and lessons from international practice

Frank Jotzo

No 249405, Working Papers from Australian National University, Centre for Climate Economics & Policy

Abstract: China is considering a national emissions trading scheme, to follow several pilot schemes, as part of the suite of policies to reduce the growth of greenhouse gas emissions. A carbon tax or tax-like scheme could be an alternative. However there are special challenges in a fast-growing economy where the energy sector is heavily regulated. This paper analyses policy design options based on principles, China’s circumstances, and Australian and European experiences. The main findings are the following. (1) Features such as variable permit supple, price floor/ceiling or a fixed permit price are desirable to provide a stable price signal, especially in China’s case. A carbon tax can be a viable alternative or complement to emissions trading. (2) Any free permits or other assistance to industry should be carefully designed to preserve incentives to cut emissions, limited so that governments can use carbon revenue to support households or pay for other policy measures, and regularly reviewed to avoid lock-in of unnecessary payments. (3) Broad coverage of emissions pricing is necessary for effectiveness, including in electricity supply and demand. Carbon pricing can be partly effective in the electricity sector ahead of comprehensive energy sector reform, ultimately however market-based energy pricing is needed. (4) Carbon pricing should be seen in the broader context of economic policy reform. It offers opportunities to support broader goals of fiscal, energy and environmental policy.

Keywords: Environmental Economics and Policy; International Relations/Trade (search for similar items in EconPapers)
Pages: 51
Date: 2013-05
References: Add references at CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:ancewp:249405

DOI: 10.22004/ag.econ.249405

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