Innovative Carbon Allowance Allocation Policy for the Shenzhen Emission Trading Scheme in China

Bin Ye, Jingjing Jiang, Lixin Miao, Ji Li and Yang Peng
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Bin Ye: Research Center on Modern Logistics, Graduate School at Shenzhen, Tsinghua University, Shenzhen 518055, China
Jingjing Jiang: South University of Science and Technology of China, University Town, Nan Shan District, Shenzhen 518055, China
Lixin Miao: Research Center on Modern Logistics, Graduate School at Shenzhen, Tsinghua University, Shenzhen 518055, China
Ji Li: Research Center on Modern Logistics, Graduate School at Shenzhen, Tsinghua University, Shenzhen 518055, China
Yang Peng: Research Center on Modern Logistics, Graduate School at Shenzhen, Tsinghua University, Shenzhen 518055, China

Sustainability, 2015, vol. 8, issue 1, 1-23

Abstract: The initial allocation of tradable carbon emission allowances is among the most contentious issues in developing an emission trading scheme (ETS). China faces serious dilemmas of system complexity and information incompleteness and asymmetry in allocating carbon allowance among enterprises. As one of the pilot ETS regions, Shenzhen has launched the first regional cap-and-trade ETS (SZ ETS) in China. Adhering to the overall plan and classification analysis, SZ ETS intends to solve the aforementioned dilemmas by developing innovative allowance allocation policies. A fundamental principle is to allocate allowances based on carbon intensity and actual output, according to which a two-step allocation procedure is constructed. A competitive game mechanism is introduced for allowance allocation among manufacturing enterprises. Empirical results indicate the following: (1) Carbon allowance allocation based on carbon intensity and actual output can mitigate carbon emission growth by reducing CO 2 emitted per unit output, and, thus, buffer the shocks of unexpected economic fluctuations to ETS stability; (2) Competitive game allocation may contribute to improving the use of scattered information to enhance the efficiency of information and emission resource allocation. Exploring SZ ETS may provide a reference for formulating future national carbon allowance allocation policies in China and other developing regions.

Keywords: carbon emission trading; allowance allocation; policy innovation; China; game theory (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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