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The impact of carbon trading on regulated agents in China

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Abstract

Facing requirements of sustainable development and tremendous international pressures, China has initiated a serious of trials for mandatory carbon trading schemes. In this study, to investigate the impact of carbon trading on commodity prices, emissions, outputs and profits of the regulated agents such as power plants in China, a partial equilibrium model is constructed based on the Cournot theory of oligopoly. Three key results were found. First, following the implementation of a carbon trading scheme there is a shift of production from plants with high emission rates to those with low rates. Second, the emission-based updating (EBU) allocation of allowable emissions would provide a buffer in which the reduced outputs and profits of plants with high emissions are alleviated. Third, if the electricity price is market oriented it will vary with the carbon price. Based on these results, we conclude that the carbon constraint will result in cleaner generating technologies and be helpful in promoting the development of low carbon technologies in China. In addition, the EBU allocation is more feasible at the beginning of the national carbon trading in China. Given that electricity prices in China are regulated now, we argue that mandatory carbon trading should be implemented at the beginning of coordinated reforms of market-oriented pricing in electricity.

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Notes

  1. It is available at http://mnc.people.com.cn/h/2011/1204/c227933-3627707023.html.

  2. It is available at http://ceem.unsw.edu.au/sites/default/files/documents/SIW13%20paper%20-%201058.pdf.

  3. Mechanism Design Theory, sometimes called reverse game theory, studies the design problems in which the goal function is the main given while the mechanism is the unknown. Details can be seen in Hurwicz (1972), Hurwicz (1973), Hurwicz and Reiter (2006).

  4. It is the average price of the spot market in China Emissions Exchange from June 18 in 2013 to April 30 in 2014.

  5. It is from Annual Report of Chinese Power Regulation (2011) published by State Electricity Regulatory Commission.

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Acknowledgments

The authors acknowledge the National Natural Science Foundation of China (71301157, 71171183, and 71172213) for their generous financial support.

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Authors and Affiliations

  1. School of Management, University of Science and Technology of China, Hefei, People’s Republic of China

    Yu Zhou, Jin Fan, Dingtao Zhao & Shanyong Wang

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  1. Yu Zhou
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  2. Jin Fan
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  3. Dingtao Zhao
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  4. Shanyong Wang
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Correspondence to Jin Fan.

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Zhou, Y., Fan, J., Zhao, D. et al. The impact of carbon trading on regulated agents in China. Mitig Adapt Strateg Glob Change 21, 377–390 (2016). https://doi.org/10.1007/s11027-014-9604-1

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  • DOI: https://doi.org/10.1007/s11027-014-9604-1

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