China's Carbon Emissions Trading System Design Studies

This dissertation firstly analyses and compares main greenhouse gas emission trading systems in the world. The analysis illustrates that the current international greenhouse gas emission trading system under "Kyoto Protocol" provides framework experiences for carbon emission trading system in China: during period between 2008 and 2012, the "Kyoto Protocol" is not a trading system to limit the total emission, but it is a system that has changed the growth rate of global emissions. Surely the "Kyoto Protocol" has facilitated development of low carbon industry and global emission reduction actions. Meanwhile, carbon emissions trading system in Europe has provided China with operational experiences in setting up similar systems. In addition, the analysis contains carbon emission reduction activities in other countries, such as local events in emission reduction in the United States and Australia, and initial development stage in emission reduction in India.The analyses then discuss the necessity of establishing carbon emissions trading system in China, focusing on constraints on setting up such a system. In China, there are profound conflicts between total emission reduction and current stage of economic and social development. China is in its middle stage of industrialization, with increased urbanization, escalation of consumption level and heavy dependence on high-carbon energy sources. These factors determine growing carbon demand is an objective trend in China. To tackle this problem, a realistic approach is to start building emission reduction systems from regional levels.Recalling China's emissions trade since 2000, local emissions trading practices are in fact malfunction in both total emission control and emissions trading. Total emission control failure means the emission cap exist without its true function so that the implementation of carbon emissions trading system loses its base. Trading malfunction represents emission certificates with zero demand and zero supply, therefore carbon emissions trading loses its base for participation. The analyses reckon that total emission control failure reflects the true motivation of local governments. In China, local governments act not only managerial role but also interest groups in carbon emissions trading due to the GDP driven nature. To establish a regional carbon emission system depends on benefits and costs to the system itself. Based on the mechanism design theory and the incentive compatibility concept, this dissertation concludes that system benefits are resulted from four key aspects. They are regional competitive advantages, supplementary income, forerunner advantages , the contrast between migration cost and abatement cost. Regional competitive advantage plays a leading role on building carbon emission trading system during its initial stage. The most important element of the regional competitive advantages is that emission reduction within target industry does not result in negative impact on the regional competitive advantages. Under such circumstances, local governments will have motivation to encourage emission reduction. In addition, supplementary income from actual incentives of central government will facilitate the system to develop. In case of trading malfunction, this paper summarizes a general design method of increasing trading entities and transactions volume.This article also presents a proposal on establishing carbon emission certificate trading system in China. Shanxi, Inner Mongolia, Hebei and Shandong provinces will be forerunners as core emission zone with focus on reducing emissions from thermal power industry. This core area can be assumed, for carbon, as financial support, technology, Clean Development Mechanism (CDM) re-organisation, power reform and international cooperation platform. The neighbour provinces, such as Jiangsu, Shaanxi, Henan, Zhejiang, Liaoning, Anhui can be prepared as emission reduction observing areas. These provinces can take part in emissions reduction via"Offset"projects or other mitigation activities, and kick off the mandatory emission schedule. Emission reduction incentives should be implemented to encourage local voluntary emission mitigation. Finally, the national emission reduction actions constitute an emission reduction mechanism that is marketable and led by corporate voluntary mitigating activities. This paper also considers suggestions on design of basic structure for regional mandatory emission reduction trading system for forerunner core area.