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Linking the emissions trading schemes of Europe and China - Combining climate and energy policy instruments

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  • Yang Liu
  • Taoyuan Wei
Abstract
Both Europe and China have announced targets for greenhouse gas emissions reduction and renewable energy development. To achieve their emissions targets, Europe has introduced emissions trading scheme (ETS) since 2005 and China has planned to establish a national ETS in 2015. We assess the impact of a joint Europe-China ETS when both climate and energy policy instruments are simulated in a multiregional general equilibrium model. Our results show that a joint ETS markedly increases total carbon emissions from fossil fuels even though global mitigation costs are reduced. Moreover, a joint ETS helps China achieve its renewable energy target, but for Europe, it works opposite. While the renewable energy target does not help Europe achieve additional abatement, the renewable energy target in China reduces mitigation costs and emissions, and increases renewable energy consumption and sales of carbon allowances. Financial transfer through a joint ETS remains marginal compared to China’s demand for renewable energy subsidies. We conclude that as long as an absolute emissions cap is missing in China, a joint ETS is not attractive for mitigation and China’s renewable energy target can reduce emissions. Copyright Springer Science+Business Media Dordrecht 2016

Suggested Citation

  • Yang Liu & Taoyuan Wei, 2016. "Linking the emissions trading schemes of Europe and China - Combining climate and energy policy instruments," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 21(2), pages 135-151, February.
    • Handle: RePEc:spr:masfgc:v:21:y:2016:i:2:p:135-151
    DOI: 10.1007/s11027-014-9580-5
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    1. Julien Lefevre, 2018. "Modeling the Socioeconomic Impacts of the Adoption of a Carbon Pricing Instrument – Literature review," CIRED Working Papers hal-03128619, HAL.
    2. Li, Mengyu & Weng, Yuyan & Duan, Maosheng, 2019. "Emissions, energy and economic impacts of linking China’s national ETS with the EU ETS," Applied Energy, Elsevier, vol. 235(C), pages 1235-1244.
    3. Xia, Yan & Tang, Zhipeng, 2017. "The impacts of emissions accounting methods on an imperfect competitive carbon trading market," Energy, Elsevier, vol. 119(C), pages 67-76.
    4. Wei, Taoyuan & Zhu, Qin & Glomsrød, Solveig, 2018. "How Will Demographic Characteristics of the Labor Force Matter for the Global Economy and Carbon Dioxide Emissions?," Ecological Economics, Elsevier, vol. 147(C), pages 197-207.
    5. Weidong Chen & Yujie Bi, 2018. "Electricity price subsidy or carbon-trading subsidy: which is more efficient to develop photovoltaic power generation from a government perspective?," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 23(5), pages 667-683, June.
    6. Winkler, Malte Björn Johannes & Peterson, Sonja & Thube, Sneha, 2021. "Gains associated with linking the EU and Chinese ETS under different assumptions on restrictions, allowance endowments, and international trade," Energy Economics, Elsevier, vol. 104(C).
    7. Chang, Kai & Pei, Ping & Zhang, Chao & Wu, Xin, 2017. "Exploring the price dynamics of CO2 emissions allowances in China's emissions trading scheme pilots," Energy Economics, Elsevier, vol. 67(C), pages 213-223.
    8. Li, Mengyu & Duan, Maosheng, 2021. "Exploring linkage opportunities for China's emissions trading system under the Paris targets——EU-China and Japan-Korea-China cases," Energy Economics, Elsevier, vol. 102(C).
    9. Zhang, Xu & Qi, Tian-yu & Ou, Xun-min & Zhang, Xi-liang, 2017. "The role of multi-region integrated emissions trading scheme: A computable general equilibrium analysis," Applied Energy, Elsevier, vol. 185(P2), pages 1860-1868.
    10. Wei, Taoyuan & Liu, Yang, 2017. "Estimation of global rebound effect caused by energy efficiency improvement," Energy Economics, Elsevier, vol. 66(C), pages 27-34.
    11. Qianqian Guo & Zhifang Su & Chaoshin Chiao, 2022. "Carbon emissions trading policy, carbon finance, and carbon emissions reduction: evidence from a quasi-natural experiment in China," Economic Change and Restructuring, Springer, vol. 55(3), pages 1445-1480, August.
    12. Tang, Ling & Wang, Haohan & Li, Ling & Yang, Kaitong & Mi, Zhifu, 2020. "Quantitative models in emission trading system research: A literature review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 132(C).
    13. Ru Li & Sigit Perdana & Marc Vielle, 2021. "Potential integration of Chinese and European emissions trading market: welfare distribution analysis," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 26(5), pages 1-28, June.

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