Impact of Carbon Quota Allocation Mechanism on Emissions Trading: An Agent-Based Simulation

Wei Jiang, Jia Liu and Xiang Liu
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Wei Jiang: School of Information and Safety Engineering, Zhongnan University of Economics and Law, Wuhan 430073, China
Jia Liu: School of Information and Safety Engineering, Zhongnan University of Economics and Law, Wuhan 430073, China
Xiang Liu: Economics and Management School, Wuhan University, Wuhan 430072, China

Sustainability, 2016, vol. 8, issue 8, 1-13

Abstract: This paper establishes an agent-based simulation system of the carbon emissions trading in accordance with the complex feature of the trading process. This system analyzes the impact of the carbon quota allocation mechanism on emissions trading for three different aspects including the amount of emissions reduction, the economic effect on the emitters, and the emissions reduction cost. Based on the data of the carbon emissions of different industries in China, several simulations were made. The results indicate that the emissions trading policy can effectively reduce carbon emissions in a perfectly competitive market. Moreover, by comparing separate quota allocation mechanisms, we obtain the result that the scheme with a small extent quota decrease in a comprehensive allocation mechanism can minimize the unit carbon emission cost. Implementing this scheme can also achieve minimal effects of carbon emissions limitation on the economy on the basis that the environment is not destroyed. However, excessive quota decrease cannot promote the emitters to reduce emission. Taking into account that several developing countries have the dual task of limiting carbon emissions and developing the economy, it is necessary to adopt a comprehensive allocation mechanism of the carbon quota and increase the initial proportion of free allocation.

Keywords: environment safety; carbon trading; quota allocation; carbon emission; agent-based simulation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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