Research in Progress
How effective were the Chinese regional emissions trading schemes? A meta-analytic answer
Evaluating Equity in Climate Mitigation Policies through a Spatial Economics Model
Research proposal available upon request
Market-Based Mechanisms for Supporting Renewables: Theoretical Insights and Model Simulations
Working Papers
China’s Nationwide CO2 Emissions Trading System: A General Equilibrium Assessment
with Lawrence H. Goulder, Xianling Long, and Da Zhang
China’s recently launched CO2 emissions trading system, already the world’s largest, aims to contribute importantly toward global reductions in greenhouse gas emissions. The system, a tradable performance standard (TPS), differs importantly from cap and trade (C&T), the principal emissions trading approach used in other countries. This paper presents the structure and results from a multi-sector, multi-period equilibrium model tailored to evaluate China’s TPS. The model incorporates distinctive features of China’s economy, including state-owned enterprises and electricity market regulation. It distinguishes between the TPS and C&T and considers a wide range of potential future TPS designs.
Key findings include the following. The TPS’s environmental benefits exceed its costs by a factor of five when only the climate-related benefits are considered and by a significantly higher factor when health benefits from improved air quality are included. The TPS’s interactions with China’s fiscal system substantially affect its costs relative to those of C&T. Employing a single benchmark (standard) for the electricity sector would lower costs by 34 percent relative to the four-benchmark system that is actually in place but increase the standard deviation of percentage income losses across provinces by more than 60 percent. Introducing an auction as a complementary source of allowance supply can lower economy-wide costs by at least 30 percent.
Rate-Based Emissions Trading with Overlapping Policies: Insights from Theory and an Application to China
with Carolyn Fischer and Lawrence H. Goulder
Jurisdictions employing emissions trading systems (ETS) often use additional policies like renewable energy support, leading to complex interactions. While cap-and-trade systems have been widely studied, rate-based ETS, with flexible emissions and prices, demands further investigation. This paper provides a formal theoretical analysis and a numerical general equilibrium model to examine how various ETS interact with policies like renewable subsidies and electricity taxes. In China’s case, we found that overlapping renewable policies can reduce abatement costs by 20-30%. Further optimization of these policies can lead to additional cost reductions, highlighting the importance of integrated policy consideration.
This paper won the Best Conference Paper Golden Prize (one out of 96) in the 2024 Conference of the Chinese Association of Environment and Resource Economists (CAERE).
Selected Publications
Exploring U.S. — China climate cooperation through linked carbon markets
Alexander F. Li, Chenfei Qu, Xiliang Zhang
Published in Advances in Climate Change Research, 2022
Emissions trading systems (ETSs) are widely used policy tools for driving emissions reductions and serve as an avenue for international climate cooperation. Following the recent global agreement on carbon market standards at COP26, this study explores linked ETSs as a means for the U.S. and China to cooperate on climate action. The emissions, energy, and economic effects of linked ETSs are analyzed through the China-in-Global Energy Model (C-GEM), a multi-regional, computable general equilibrium model. Assuming the development of national economy-wide ETSs, two scenarios are developed linking China and the U.S.: 1) a bilateral U.S.-China ETS linkage; 2) a multilateral ETS linkage that includes China, the U.S., and nations in Southeast Asia. Results indicate that emissions and energy consumption outcomes would be similar in both the bilateral and multilateral scenarios. However, economic outcomes are more favorable in the multilateral linkage scenario. When China and the U.S. engage in bilateral ETS linkage, China predominantly benefits from additional support for domestic decarbonization, while the U.S. benefits from increased GDP compared to a scenario without ETS linkage. Adding Southeast Asia to establish a multilateral linkage improves GDP outcomes for all participants, reducing adverse effects on China’s GDP while boosting GDP for the U.S. and Southeast Asia. For policymakers considering the design and implementation of international ETSs, this study presents updated modeling on the effects of ETS linkage on each country, as well as the economic benefits of expanding participation to additional regions.
The C-REM 4.0 model: A CGE model for provincial analysis of China’s carbon neutrality target
Hantang Peng, Chenfei Qu, Valerie J. Karplus, Da Zhang
Published in Energy and Climate Management, 2024
The China Regional Energy Model (C-REM) is a recursive-dynamic, multi-sector, multi-regional computable general equilibrium model that has been widely used in studies of the impact of energy and climate policies, focusing on the distribution of effects across China’s provinces. We summarize its historical applications and describe the modeling methods used in the newly updated C-REM Version 4.0, illustrating its features with sample simulation results for China’s carbon neutrality target. By utilizing the latest regional input–output tables for China and the Global Trade Analysis Project 11 database, we update the base year economic data to 2017 and ensure consistency between physical and monetized values by matching and reconciling provincial energy data with economic data. Carbon capture and storage technologies are introduced as a backstop to achieve net-zero emissions in the model simulations. Our simulations indicate that the 2060 carbon neutrality target will lead to a lower and earlier peak in total primary energy consumption, with a transition towards non-fossil energy sources compared to the previous target, which focused solely on the timing of the carbon peak. The scenarios further suggest that the electricity and metal smelting sectors are the main contributors to CO2 reduction between 2025 and 2060. Assuming the current effort-sharing principle continues for emissions reduction target allocation among provinces, more developed provinces and those relying heavily on fossil-based energy will bear higher costs in a net-zero energy transition. Certain northwest provinces are projected to experience positive impacts due to industry relocation, driven by abundant renewable resources and carbon storage capacity. The paper concludes with a discussion of anticipated directions for the future development of the C-REM.