Impacts of carbon price level in carbon emission trading market

The problems of excessive CO2 emissions and global warming caused by human activities are becoming more and more severe. Emission Trading Scheme (ETS) may be an effective mean of combating global warming. However, little research focuses on the influence of ETS price on energy consumption, CO2 emissions, and the economy. This paper analyzes the impact of different ETS price level by applying a dynamic recursive Computable General Equilibrium model. The results show that GDP will reduce more with increasing ETS price level. The output of energy industries is more sensitive to ETS price than other industries. Higher ETS price, lower marginal reduction of fossil energy consumption of ETS price. Moreover, low ETS prices will undermine the capacity of the carbon market to reduce emissions. Higher ETS price will lead to a higher reduction in CO2 emission, but the economic costs cannot be ignored. Therefore, this paper argues that ETS prices in China's ETS pilot cities are too low, and would provide little emission reduction. Maintaining EIS prices at $10 and gradually increasing carbon price to $20 is suggested in this paper. Also, we should focus on the appropriate subsidies for new energy generation.