Simulation on the effectiveness of carbon emission trading policy: A system dynamics approach

Xiongfeng Pan, Mengna Li, Haitao Xu, Shucen Guo, Ranran Guo and Chew Tin Lee

Journal of the Operational Research Society, 2021, vol. 72, issue 7, 1447-1460

Abstract: As a flexible market mechanism based on the control of total quantity, the carbon emission trading system aims to achieve economic development while reducing carbon emissions and energy consumption. How to improve the effectiveness of carbon emission trading (CET) policy and achieve the established emission reduction targets have attracted widespread attention from scholars. Taking Guangdong Province as an example, this paper constructed a system dynamics (SD) model to investigate the interaction between internal factors of CET system and simulated the effectiveness of CET policy from 2016-2026. The results indicate that (1) Relative errors between historical data and simulated data are controlled within 5%, which indicates that the system model is suitable to simulate real system. (2) The average sensitivity of the quota variation rate, paid ratio and penalty coefficient are 0.42, 0.56 and 0.29, respectively, indicating that these three parameters can be identified as leverage parameters affecting the efficiency of the CET policy. (3) A single type of policy is difficult to achieve emission reduction targets. The policy portfolio scenario will achieve the reduction target in Thirteenth Five-Year plan of Guangdong, that is, the total amount of quota decreases by 0.5% per year, the paid ratio rises 2% in that ratio per year, and the penalty coefficient is triple the carbon price.

Date: 2021
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DOI: 10.1080/01605682.2020.1740623

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