ANALYSIS OF THE CARBON ALLOWANCE ALLOCATION AND SECTORAL COVERAGE IN THE CARBON MARKET UNDER THE NEW CLIMATE AMBITION: A CASE STUDY OF CHINA

Si Cheng, Jihong Zhang and Shaozhou Qi

Chapter 4 in Sustainable Growth and Green Policies:Navigating Energy and Environmental Challenges, 2025, pp 75-99 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Reasonable allocation of carbon allowances and determination of coverage in the carbon market are essential to the realization of the emissions reduction goal. Using China as an example, we propose a multi-criteria allocation scheme based on the principle of equity, efficiency and feasibility, considering carbon abatement costs and carbon leakage risks. An improved zero-sum gains-data envelopment analysis model in accordance with China’s new carbon intensity target in climate ambition is used for allowance allocation. Subsequently, the sectoral coverage choice of the carbon market is proposed. We obtain an optimal reallocation scheme after five iterations. The results show that the allocation method in this study can better promote the carbon market to reduce emissions at a lower cost while preventing carbon leakage to a certain extent. Based on the contribution to the overall emission reduction, the emission reduction costs and carbon leakage risks, we further classify the sectors into three categories. With China as an example, these findings lay a scientific basis for China to achieve its climate ambition through the carbon market, and also have global implications in regard to developing a more scientific allocation scheme, especially for carbon markets in emerging and developing countries.

Keywords: Sustainable Growth; Green Policies; Energy Transition; Green Finance; Carbon Neutrality; Renewable Energy; Climate Change Policy; Environmental Sustainability; Economic Recovery; Carbon Markets; Sustainable Development; Energy Policy; Green Economic Recovery; Low-Carbon Economy; Financial Mechanisms For Sustainability; Climate Finance; Macroeconomic Policies and Sustainability; ESG Investing; Climate Resilience; Clean Energy Investment; Green Bonds; Sustainable Finance; Carbon Pricing; Energy Efficiency; Emerging Economies and Sustainability; Renewable Energy Financing; Circular Economy; Sustainable Investment; Climate Risk Assessment; Just Transition; ASEAN Energy Transition; BRICS Economies and Sustainability; OECD Green Policies; China's Carbon Market; EU Climate Policies; Southeast Asia Renewable Energy; Developing Economies and Climate Finance; Energy Poverty and Sustainable Solutions; Public Spending and Green Recovery; Net-Zero Policies; Econometric Models in Sustainability; Quantitative Analysis of Energy Markets; Cross-Sectional Autoregressive Distributed Lag Models; Behavioral Finance and Renewable Energy Investment; Policy Evaluation Frameworks; Decarbonization; Sustainable Development Goals; Green Growth (search for similar items in EconPapers)
JEL-codes: F64 O13 Q50 Q56 Q58 (search for similar items in EconPapers)
Date: 2025
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