A Study Of Initial Carbon Permits Allocation And Efficiency Of Intertemporal Carbon Market

In this century natural system and human development are facing serve challenge induced by climate change due to GHG?Greenhouse Gas?.Alleviating global warming needs early on substantial and long-term GHG emission reductions around the world.The emissions trading system implemented by Europe as leader occupied a dominant role in climate policies.To achieve GHG emissions reduction target with low-cost,China has successively launched 7 pilot carbon markets since 2013,and she started the national united carbon market in 2017.However,the new united carbon market will be probably confronted with a series of the new conditions and problems,and it is therefore essential to examine the potential pivotal scientific issues with respect to the construction and operation of united carbon market based on drafting experience of EU ETS.It is well known that allowance initial allocation and market efficiency are both extremely important to carbon market.Thus,at present the issues to be urgently solved are how to harvest a scientifically reasonable national distribution of carbon allowance and improve the market efficiency.To this end,this study innovatively proposes emission quotas allocation methodology for both provinces and emitters in“top-bottom”way and provides efficiency analysis for quota auction,and systemically examines how to improve the carbon market efficiency in various analytical cases,including comparison between different intertemporally transferring regimes,market power,technological change of emissions reduction and environmental negative externality.Specifically,the main work and contribution are summed up below:?1?The interprovincial quota allocation is examined,and an approach of interprovincial quota allocation from the perspective of cost-effectiveness is proposed to obtain the CO₂ quotas of the provinces.First,engineering–economic methodology is used to estimate the national MAC functions,and interprovincial MAC function is deduced from national one.the.Then I propose a cost minimization allocation model with the constraint of the CO₂reduction target to obtain the CO₂ quotas of 30 provinces by 2030.Besides,the proposed method is verified to be the most cost-effective in comparison with the others.?2?The quotas initial allocation for emitters is examined from the industrial perspective.A multi-objective decision approach is proposed,which incorporates the principles of efficiency,fairness and feasibility,to allocate the carbon quota to emitters.The efficiency,fairness and feasibility are characterized by maximum of industrial added value,weighted sum of basic emissions right and development performance right,the average of historical emissions,respectively.Taking Guangdong as an example,the proposed approach is specially employed to allocate carbon quota to six major industries of petrochemical,chemical,cement,steel,nonferrous metals and electricity power by 2030.The quota per 10⁴ Yuan added value of industry with lower emissions is more sensitive to the changes of physical capital stock,but impacted less by the changes of emissions cap for six industries.The empirical results show that the proposed approach can not only effectively eliminate the defects of single-object models to make the allocation results more reasonable,but also achieve optimal allocation options under various decision preferences.?3?Analyzing how to achieve the cost-effectiveness in presence of market power in auction,and comparing two prevalent allocation patterns,mixed allocation and single auction.We consider such situation in this paper:one dominant firm in production market has market power in auction,and the fringes following the dominator in production market are price takers in auction.It shows that the efficiency cannot be obtained unless the total auctioned quotas equal to the total quotas the firms hold in equilibrium?effective cap?.The difference between mixed allocation and single auction will be:?i?Provided that the market power firm holds strictly positive free permits,the effective cap of the former is larger than that of the later.?ii?Without considering the environmental negative externality,the welfare performance of the former is preferred to that of the later.?4?Examining theoretically how permits initial allocation influences the efficiency of completely competitive intertemporal carbon market.By a two-period carbon market efficiency model?without output market?,this study theoretically analyzed how permits initial allocation influence the efficiency of intertemporal carbon market without banking and borrowing?BB?regime,with single banking regime and with BB regime.The results show that the efficiency without BB regime strictly depends on the initial allocation,and the market keeps inefficiency unless the efficient initial allocation for each period is obtained.If the total initial permits in the first period are sufficient in the market with single banking regime,the market will be efficient and intertemporal carbon price will follow Hotelling rule.Otherwise,it will be inefficient and the discounted price in the second period is below that in the first one.The efficiency with BB regime is independent on the initial allocation,and the market makes intertemporal carbon price follow Hotelling.?5?Exploring theoretically how permits initial allocation influences the efficiency of incompletely competitive intertemporal carbon market and examining the welfare performance in two initial allocation policies.Both market power and output market are considered in this part.The following case is considered:There are two types of firms regulated in a finite planning horizon.They are both price takers in output markets.The large firm has market power to manipulate carbon market,and the fringe one is considered as price taker.The results show that the efficiency entail the equal discounted marginal productivity of carbon permits across agents as well as across periods.The total emissions of each firm in BB system keep the same with that in no BB system,and the welfare gains more in the former due to less efficiency lost.Furthermore,this study supplies new initial allocations methods that based on expectant basis,including emissions budgets and production plan allocation.The production plan will be more preferred given high marginal benefits of carbon permits.?6?Examining how technological change of emissions reduction affects the cap,and identifying the efficiency property of intertemporal carbon market with considering the negative externality.The results show that the effect of technological change on cap is negative in both cases of pure flow and pure stock externality.This effect is uncertain in mixed externality case.Generally,the social costs are enlarged since firms sub-optimally discharge more but less compared with the socially optimal path.In a very few cases,the decentralized emissions of firms achieve social optimum if the ratio of marginal damage in period 1 to discounted marginal damage in period 2 exactly equals the decayed rate.Finally,the proposed hybrid quantity-price policy can adjust the path of firms to be socially desirable with an effective quantity control.