Does the co-existence of carbon emission trading and white certificate make sense? The case of China

Transcription

1 Presented at the 40 th International Conference of IAEE, June 2017 Does the co-existence of carbon emission trading and white certificate make sense? The case of China Lei ZHU, Yuan Li, Xin WANG School of Economics and Management Beihang University

2 Introduction The economic and politic preference is given to ETS so far in China in terms of climate change mitigation Yet the introduction of climate and environmental taxation as well as energy saving trading (usually known as White Certificate, WhC) has also been linked into the 13th Five Year Plan ( ) of China 2

3 Introduction When different market-based instruments with same or diverse but similar ends (climate mitigation, energy saving, etc.) co-exist, industries in general may consider them as additional operational costs and may become major political resistance to implementation However, there exist quite a few papers on the coexistence between ETS and White Certificate. 3

4 Introduction Our Work Assuming ETS already implemented, we aim to explore if the introduction of White Certificate system can enhance industries' interest of participation A partial equilibrium analysis framework has been established here An application has been made to China's steel and cement industries 4

5 Model Energy Intensive Sector 1 Energy Intensive Sector 2 Other Sector 1 Other Sector 2 Emission Trading Scheme The price is given exogenous Energy Intensive Sector White Certificate The price is generated endogenous by the model Other Sector The White Certificate is defined as a mandatory energy consumption cap set for energy intensive sectors with over-fulfilled energy saving tradable in the market (NDRC) Assume that the ETS exists before the implementation of White Certificate, and ETS covers a larger range of sectors than the White Certificate (which only covers energy-intensive sectors) 5

6 Model 6

7 Model 7

8 Model 8

9 Model Only ETS but with Energy Saving Target 9

10 Model Overlap between ETS and White Certificate 10

11 Model No overlap between ETS and White Certificate If overlap between ETS and White Certificate is prohibited, provided with the saved energy, industry sectors can choose either to trade in ETS or under White Certificate according to markets situations and their profits maximization. Here we would like to present our discussion with a two sectors case (Sector i and Sector j). Both sectors choose White Certificate 11

12 Model No overlap between ETS and White Certificate Diversified choices between Sectors i and j 12

13 Model No overlap between ETS and White Certificate Diversified choices between Sectors i and j 13

14 Model No overlap between ETS and White Certificate Diversified choices between Sectors i and j 14

15 Model No overlap between ETS and White Certificate Arbitrage between ETS and White Certificate 15

16 Model No overlap between ETS and White Certificate Arbitrage between ETS and White Certificate 16

17 Model No overlap between ETS and White Certificate Arbitrage between ETS and White Certificate 17

18 Model No overlap between ETS and White Certificate Arbitrage between ETS and White Certificate With the payment matrix, a Nash equilibrium among the two sectors can be determined under given carbon price levels (the price of White Certificate is endogenous). And the equilibrium condition may not exist under some levels of carbon price 18

19 A Two-Sector Application Scenario and Data Sector i Sector j Base Case Only ETS Scenario 1 Only ETS and with Mandate Energy Saving Targets Scenario 2 Allowing overlap between ETS and White Certificate Scenario 3 Not allowing overlap between ETS and White Certificate 19

20 A Two-Sector Application Base Case & Scenario % Carbon Price Level (Yuan/t CO2) % -6.00% -9.00% % % Production-IS Production-CM Base Case Scenario % 0.50% Carbon Price Level (Yuan/t CO2) Profit-IS Profit-CM 0.25% 0.00% -0.25% Base Case Scenario 1 20

21 A Two-Sector Application Base Case & Scenario 1 Energy Saved-IS Energy Saved-CM Emission Reduced-CM Emission Reduced-IS 50 Base Case Scenario 1 0% Unit: Mt ce 25-5% -10% Carbon Price Level (Yuan/t CO2) -15% Allowances Traded-IS Allowances Traded-CM Unit: Mt CO "+": buy/"-": sell Base Case Scenario Carbon Price Level (Yuan/t CO2)

22 A Two-Sector Application Scenario 2 0% Carbon Price Level (Yuan/t CO2) % Carbon Price Level (Yuan/t CO2) % 0.6% -6% 0.4% -9% 0.2% -12% 0.0% -15% Production-IS-S1 Production-IS-S2 Production-CM-S1 Production-CM-S2-0.2% Profit-IS-S1 Profit-IS-S2 Profit-CM-S1 Profit-CM-S Carbon Price Level (Yuan/t CO2) "+": buy/"-": sell 50 Allowances Traded-IS-S1 (Mt CO2) Allowances Traded-IS-S2 (Mt CO2) 0 Allowances Traded-CM-S1 (Mt CO2) Allowances Traded-CM-S2 (Mt CO2) Certificate Traded-IS-S2 (Mtce) Certificate Traded-CM-S2 (Mtce) Certificate Price (Yuan/tce) 22

23 A Two-Sector Application Scenario 2 0% Carbon Price Level (Yuan/t CO2) % -10% -15% Emission Reduced-IS-S1 Emission Reduced-IS-S2 Emission Reduced-CM-S1 Emission Reduced-CM-S2 Total Emission Reduced-S1 Total Emission Reduced-S2 23

24 A Two-Sector Application Scenario 3 24

25 A Two-Sector Application Scenario 3 25

26 Conclusion A negative correlation between and appears in both cases of overlap and no overlap between ETS and White Certificate. By consequence, the implementation of White Certificate after implementation of ETS cannot stimulate a double-effects on energy saving (or CO2 reduction) among sectors, as these sectors will strategically allocate their saved energy in the two schemes based on their profit maximization. 26

27 Conclusion However, the co-existence of ETS and White Certificate does have several advantages as diversification of public policy failure risks and enrichment of private sectors' choices in terms of energy-related CO2 emissions abatement. Such co-existence may play significant roles as they can: 1) Complement of each other, so to avoid the market failure in one scheme affect the emission control target realization; 2) Provide diversified choices to heterogeneous enterprises so to maintain their initiatives in emission control activities. 27

28 Many Thanks 28