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Efficiency or Equity? Simulating the Carbon Emission Permits Trading Schemes in China Based on an Inter-Regional CGE Model

Libo Wu () and Weiqi Tang
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Weiqi Tang: School of Economics, Fudan University

CCEP Working Papers from Centre for Climate & Energy Policy, Crawford School of Public Policy, The Australian National University

Abstract: Energy conservation and greenhouse gas (GHG) abatement have been included in the national development strategy of China. However, the rigidity in command-and-control mechanisms and arbitrariness in assignment of GHG abatement burden across regions have caused unnecessary losses in both economic efficiency and social equity. In this paper, we use an Inter-Regional Dynamic CGE (IRD-CGE) model to simulate economic and welfare impacts of climate policies on national and regional level, including carbon intensity targets, regional emission constraints and cap-and-trade mechanism. Comparison among alternative emission reduction policy mechanisms indicates that emission trading scheme can not only moderate the economic and social welfare losses, but also improve social equity by decoupling the allocation of emission permits from economic optimization of emission reduction scheme. From this perspective, emissions trading bridges the concerns for economic efficiency and social equity, since emission permits could be reallocated as an income transfer so as to promote inter-regional equity, while economic efficiency is maintained.

Keywords: greenhouse gas emissions; energy conservation; emission reduction; pollution; cap-and-trade mechanism (search for similar items in EconPapers)
JEL-codes: Q54 Q56 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-cmp, nep-cna, nep-ene, nep-env, nep-reg and nep-tra
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Working Paper: Efficiency or Equity? Simulating the Carbon Emission Permits Trading Schemes in China Based on an Inter-Regional CGE Model (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:een:ccepwp:1505

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