Revealing the impact of a projected emission trading scheme on the production technology upgrading in the cement industry in China: An LCA-RCOT model

Abstract The cement industry in China has been conducting overcapacity elimination through technology upgrading in the past years. Most of the overcapacity elimination policies are in the form of administrative and regulative approaches. However, the cost of overcapacity elimination by implementing command-and-control policies will be increasingly higher, at the same time, the orientation of such technology upgrading remains unknown. Such contradiction creates the necessities to reveal the impact of other policy instruments on the technology upgrading in the cement industry, as well as to clarify the optimal output allocation among all alternative technology choices. In this paper, an LCA-RCOT model (Life Cycle Assessment and Rectangular Choices Of Technologies) is established to provide such optimal technology combination with the constraints from a projected emission trading scheme (ETS). The results show that under an ETS cap with a target of 5% reduction of emission, 10% of subsidy allowances, and one-way linking with another ETS with higher average market price, the optimal solution suggest that 114.5 billion USD of total output in the cement sector should be produced by small dry kilns, while 102.5 billion USD by large dry kilns. In all feasible solutions, the optimal technology combination may shift to fewer shaft kilns and more dry kilns. In the long run, the climate policy instrument, ETS, may promote the upgrading of production technology by decomposing the total emission mitigation costs to the factor inputs of each cement producer.