The paper titled Evaluating various choices of sector coverage in China’s national emissions trading system (ETS) is about sector coverage matters greatly in designing China’s national emissions trading system (ETS), with issues to be considered including impacts on emission reduction, economic and social welfare change, and carbon leakage to uncovered sectors. In this article, we evaluate various policy choices by setting up six scenarios in a China computable general equilibrium model. To investigate the optimal choice determining which sectors should be covered, criteria such as emission scale, trade intensity, emission intensity and complex indicators of optimal carbon revenue are compared. In addition, double counting of electricity production- and consumption-related carbon emissions is also included as a specific scenario, as it might be utilized to deal with the problem of price regulation of the electricity sector in China. The simulation result shows that the emissions intensity scenario can achieve the best emissions reduction effect, and the optimal carbon revenue scenario can achieve the best economic and welfare effect. All scenarios show that partial coverage will not lead to significant inter-sectoral carbon leakage in the current construction of the national ETS. Although the double counting of emissions from the electricity sector can lead to the lowest inter-sectoral carbon leakage rate, its emissions reduction effect, economic effect and welfare effect are all inferior to the other scenarios.
Key policy insights
Linking emissions trading schemes is the bottom-up approach to creating a global carbon market. It entails political compromise and a careful assessment of the trade-off between its advantages and disadvantage.