China's Rate-Based Approach to Reducing CO2 Emissions: Attractions, Limitations, and Alternatives
AEA Papers and Proceedings
vol. 108,
May 2018
(pp. 458-62)
Abstract
A distinguishing feature of China's recently launched emissions trading system (ETS) is its rate-based structure. This structure governs the way emissions allowances are allocated and the conditions for compliance, and it has important implications for system performance. We show that the rate-based structure implies a wedge between the marginal costs of emissions abatement as perceived by firms and society's marginal costs of abatement. Moving to a mass-based system would eliminate this wedge and thereby yield significant gains in terms of cost-effectiveness and efficiency (aggregate net benefits). We indicate that these gains could be realized while addressing concerns about distributional equity.Citation
Goulder, Lawrence H., and Richard D. Morgenstern. 2018. "China's Rate-Based Approach to Reducing CO2 Emissions: Attractions, Limitations, and Alternatives." AEA Papers and Proceedings, 108: 458-62. DOI: 10.1257/pandp.20181028Additional Materials
JEL Classification
- O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
- P28 Socialist Systems and Transitional Economies: Natural Resources; Energy; Environment
- P31 Socialist Enterprises and Their Transitions
- Q52 Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
- Q54 Climate; Natural Disasters and Their Management; Global Warming
- Q58 Environmental Economics: Government Policy