The Initial Allocation Of Emission Permits Based On PAC And DEA

Since the implementation of the emissions trading system in the United States, it has attracted global attention, and has been applied in many countries. However, during the implementation of emissions trading system, a key problem should be solved imperiously in theory and practical applications that is the initial allocation of emission permits.The initial allocation of emission permits mainly includes grandfather, auction and sale price, those three systems have their own strengths, but still have obvious flaws from the view of theory and practice; therefore, there is a need for the innovation in theory and practice. In this paper, the author discusses the fundamental theory of the emissions trading system and studying the demand for initial allocation of emission permits through the basic ideas and methods of economics. Also it summarizes a literature review of the existing distribution (grandfather and auction), and reviews the advantages and disadvantages of those two methods, as well as concludes the necessary points of theoretical innovation and the significant of practice. And then this paper studies the new distributions which are recently proposed, using Perimt Allocation Contest( PAC) and non-parametric DEA model to allocate emission permits. The allocation mechanism of PAC has more advantages than that of the tradition. This allocation method produces similar stimulation as the auction, which makes PAC can allocate the emission rights in the emissions trading market efficiently in theory. However, it shows perfect to some extent, but still makes the emissions trading system more complicated, which is not conducive to the promotion of emissions trading in China. Thus the emissions trading system have to continuously run and accommodate the various traditional systems. Therefore, as far as Chinese practical experience of emissions trading system has been accumulated enough, the pilot PAC mechanism could be selected and run. To some extent, DEA distribution model is a theoretical improvement of the grandfather system. Although it doesn't seem like the auction so efficient in theory, it is similar to the system of grandfather and can be used in practice more easily, since there is no additional cost to the company and no limitation in the company's normal production. Finally, combined the Chinese basic national conditions with practical experience of emissions trading systems, the author will study which kind of distributions should be taken in China, and do a further research.The initial allocation of emission permits not only relatives to fairness and efficiency issues, but also relates to the benefits of emission units, and to the sustainable development, so there are many complicated problems should be solve. And the most controversial and most difficult problems is the initial allocation of emission rights to implement emissions trading system. China is putting the emissions trading system into practice in a wider area. In order to allocate initial emission permits in China effectively, Chinese specific conditions should be considered at first place, and then the initial allocation of emission rights has been studied deeply. There are still a lot of complex problems in the initial allocation of emission permits, the author hopes more scholars carrying on the study and research.