Opportunity and marginal abatement cost savings from China's pilot carbon emissions permit trading system: Simulating evidence from the industrial sectors.

Abstract China has launched pilot carbon emissions permit trading schemes (ETS) in seven regions since 2013/2014 and has established a nationwide ETS in the power industry by the end of 2017. Recent literature has evaluated China's seven pilot regions on design aspects of the ETS, and yet little is known about the potential recovery of economic output loss through introducing the ETS. This study considers the recovery of industrial value added loss and thus measures the abatement cost savings from trading to evaluate the necessity and feasibility of China's pilot ETSs. The analysis develops a parametric and nonparametric combined technique to calculate the opportunity abatement cost savings (i.e., potential abatement cost savings and unrealized abatement cost savings) and marginal abatement cost savings (i.e., changes on carbon shadow prices) in China's pilot ETSs during 2011–2015. It additionally provides an estimation of potential carbon emissions reduction from ETS. Both cross-industrial trading and intertemporal trading are considered, and three simulations, defined as no trading, cross-industrial trading, and cross-industrial and intertemporal trading, are conducted. We found that, i) 1–16% potential abatement cost savings and 2–12% unrealized abatement cost savings would be identified in China's pilot ETS regions. ii) 0.5–33% and 1.6–25% carbon emissions reduction potential would be realized respectively by introducing ETS and eliminating the operational inefficiency of the ETS. iii) Marginal abatement cost savings would both exist in almost all regions if the ETS were implemented and if the ETS were fully operational.