Impact of quota decline scheme of emission trading in China: A dynamic recursive CGE model

Emission Trading Scheme (ETS) may be the effective way for CO2 reduction to mitigate global warming. However, less research has been conducted on ETS quota decline scheme. This paper establishes 6 countermeasure scenarios with different carbon right allocation decline schemes to explore the impact of these schemes on energy, economy and the environment. The results show that the emission-based ETS quota decline scheme will motivate the society to pay more attention to emission reduction. However, the scheme based on CI will make the society to focus more on resources allocation, which means that it will result to more emission and less Gross Domestic Product (GDP), but higher social welfare compared to the emission-based scenarios. The higher annual decline factor will increase the industry's pressure to cut emissions. This will cause less social welfare, GDP, sectorial output and fluctuation in commodity price. Moreover, we find that as the government fines are higher than ETS price, industries are reluctant to raise prices when they trade for cost minimization, especially those industries that incur government fine.