How will the Chinese national carbon emissions trading scheme work? The assessment of regional potential gains

The implementation of a national emissions trading scheme (ETS) in China is likely to have an important effect on potential regional gains. This study proposes a unified analytical framework for anticipating such gains in 2020 and estimates the key factors involved using data envelopment analysis based models. The results indicate that: (1) when the value of the marginal abatement cost is higher than the carbon price, no regions will have an incentive to reduce emissions by technological improvements. The only source of direct potential gains is from the amounts of carbon quota. (2) As carbon price increases from CNY 10 to 4000 per ton, the indirect potential gains will increase because the strategies for carbon reduction are technological innovation or limit economic activities. However, Jiangsu and Shanghai will suffer potential losses even though the price is high because they have no more carbon reduction potential. (3) Most central provinces will have potential gains when the carbon price is lower in ETS, while regions rich in fossil energy sources will suffer potential losses. However, a middle-price interval of CNY 1000-2000/ton is more rational, because it helps motivate market transactions and benefits low-carbon technological innovations.