Potential gains from energy quota trading in China: From the perspective of comparison with command-and-control policy

Abstract China has recently launched its pilot market for energy quota trading. Based on the observed data of China and its 30 provinces during 2006–2010, we adopt the counterfactual simulation approach to answer the question that what will be the potential gains from energy quota trading. A non-parametric optimization model is employed to simulate the potential gains from employing two energy quota trading schemes compared with traditional command-and-control scheme in China. Two energy quota trading schemes are spatial tradable energy quota permit scheme and spatial-temporal tradable energy quota permit scheme. The potentials gains of command-and-control scheme and two energy quota trading schemes, which are defined as the potential increases on GDP through eliminating technical inefficiency, eliminating sub-optimal spatial allocation of energy quota permits, eliminating sub-optimal spatial-temporal allocation of energy quota permits, respectively. Substantial potential gains and energy saving potentials from energy quota trading are verified in our study. The study will provide decision support for energy system reform in China.