The Influence of Allowance Allocation Methods on CO2 Emission Reduction: Experiences From the Seven China Pilots

Abstract

One of the key elements influencing the performance of a carbon trading system, are the methods of allocating the initial CO 2 emissions. This paper tries to use a quantitative description method to analyze the influence of the different allocation methods on the level of CO 2 emissions based on the seven pilot trading markets from 2009 to 2013 in China. The results show that different methods bring about various degrees of impacts, through direct and indirect constraint mechanism, influence the CO 2 emission cut finally. Although due to the complexity of the direct and indirect constraint mechanism, attempting to compare the effects of different allocation methods is difficult by using the data of carbon emission cut from seven pilot markets in China, the paper shows that the allowance allocation methods, through the constraints imposed on enterprises, significantly reduce regional carbon emissions.Keywords: allowance allocation, carbon trading system, CO 2 emission, China pilot markets IntroductionChina, as the largest developing country, has been committed to environmental governance and pollution reduction, and has approved seven pilot markets to establish a carbon trading system to cut carbon emissions. Seven pilot markets were officially launched and operated in 2013 and 2014 and continue to operate. Based on the study on the pilot markets, this paper investigates the influence of different allowance allocations on the CO 2 emission cut. The purpose of this study is to explore the differences among allowance allocation methods in order to contribute to possibly implementing better model or methods mixes for the distribution of initial allowances for the coming national emission trading system (ETS). For the upcoming establishment of a unified national carbon market, this research can serve to provide as a reference. The structure of this paper is as follows: the first part is the literature review; the second part introduces the different carbon quota allocation Acknowledgements: