Modeling economic performance of interprovincial CO2 emission reduction quota trading in China

Carbon emission reduction is a long-term strategy for China to promote its economic and social development. However, emission reduction often involves a huge amount of technological investment, which could vary substantially across different provinces due to their discrepancy in economic and technological development levels. Emission trading as a useful policy instrument may help different provinces achieve their emission reduction targets cost-effectively. This paper models the economic performance of an interprovincial emission reduction quota trading scheme in China. The marginal abatement cost curve of each province in China is first estimated. A nonlinear programming model is further developed to evaluate the economic performance of interprovincial emission reduction quota trading. Five equity criteria are used to conduct the initial allocation of emission reduction targets between different provinces. Our modeling results show that China’s total emission abatement cost could decrease by over 40% through implementing such an interprovincial emission reduction quota trading scheme. Of the five alternative criteria, the CO2 emissions and population criteria look fairer and are recommended for use in the initial allocation of CO2 emission reduction targets.