Comparation of China s ETS Pilots and Features of Hubei QI Shaozhou Jean Monnet Chair Professor Economics and Management School Climate Change and Energy Economics Study Centre Wuhan University
Outline 1 Comparation of China s ETS Pilots 2 Policy Features of Hubei ETS Pilot
1. Comparation of China s ETS Pilots
General picture of China ETS pilots 480000 square kilometers land area (5% of China s land area) A population of 199 million (18% of China s total population, 2010) Gross domestic product of 11.84 trillion (30% of China s GDP, 2010) 20% of China s total carbon emissions(the world's second-largest carbon market)
China s ETS Pilots reflect the characteristics and law of imperfect market in emerging economies In the left of EKC In a key stage of industrialization and urbanization Heavy chemical industry Considerable difference between regions/sectors High-speed growth of GDP Great uncertainty in economic growth, policy and market expectation Imperfect market, such as power industry Legal lag, poor data basis, weak environmental awareness Strong power and push of government
Market performance (1) Price: great difference convergence Price volatility: Price volatility of Shenzhen and Guangdong is high, the price of Hubei is stable Reason Shenzhen is marketorientation Guangdong has the problem of discontinuous policy Hubei emphasizes liquidity and starts from a lower price Beijing pay more attention to Compliance Chongqing oversupply of Allowance
Empirical Study Based on EEMD (Ensemble Empirical Mode Decomposition) In Hubei and Beijing ETS pilots Carbon price are mainly influenced by demand and supply, which means the shot term market factors play more important roles in these three markets and there is no major problem s in their policy or institution design. In Shanghai, Guangdong, Shenzhen and Tianjin ETS pilots Carbon price are mainly influenced by intrinsic trend item, which means there are some major problems in terms of their institution or policy
Market performance (2) Hubei: Other pilots: The largest trading volume and value Compliance-driven Transaction The highest liquidity Trading concentrate before Continuous transaction compliance Figure:Trading volume and turnover of each pilot (As of August 25)
Pilot Year Expected compliance date Actual compliance date Compliance rate Hubei 2015 May 30 July 10 100% June 30 (hand in the 2014 June 30 99.4% Shenzhen allowances before July 10) 2015 June 30 June 30 99.7% Shanghai Beijing Guangdong Tianjin Compliance Results (2014 and 2015) 2014 June 30 June 30 100% 2015 June 30 June 30 100% 2014 June 15 June 27 97.1% 2015 June 15 June 27 (hand in the allowances before June 30) 100% 2014 June 20 July 15 98.9% 2015 June 23 July 8 (the last firm completed the compliance) 100% 2014 May 31 July 25 96.5% 2015 May 31 July 10 99.1% Chongqing 2014 2015 June 23 July 23 -
Empirical Study about the effect of ETS on Emission in the power sectors based on DID (Panel double difference regression method)
2. The Policy Features of Hubei ETS Pilot
Performance of Hubei ETS Pilot Price Liquidity Emission Reduction? Highest liquidity 100% Pricing compliance benchmark
CAP: 1. Tightened CAP and Flexible Structure 324 million (2014 ) 281 million (2015). 13.27% Rolling base year 2014:2009-2011 2015:2012-2014 Flexible structure Existing firm (fixed) New entrants(flexible) Government reserve (less than 8% of CAP)
2. Coverage------Focus on Large Enterprises 138 Firms 12 sectors (2014) 60,000 ton (standard coal equivalent) 168 Firms 15 Sectors (2015)
3. Tightened Initial Allowance (2014) 2010 emission 97% 0.9192 Initial allowance 73% of CAP
4. Allowance allocation- Three Combinations Free + Auction Free: Initial allowance and new entrant Auction: Less than 3% of Government reserve Grandfather +Benchmark Grandfather: non power heating(2014)/cement sectors(2015) Benchmark: power+heating (2014)+cement(2015) Pre-allocation + Ex-post adjustment Pre-allowance: initial allowance for existing capacity, half allowance for power sector(2014), Allocation for 2015 Based on output in 2014 for Benchmark, Pre- allocation part of 2016 for spot forward Ex-post adjustment: Added allowance for new capacity, Added allowance for over 20% or 200 thousand, CAP of next year, Allocation policy next year
5. Policy for increasing liquidity Tightened initial allowance General balance between demand and supply Diversified market participant Only traded allowance can be banking Carbon finance innovation Lower initial price Positive expectation
6. Balance demand and supply Buyer Seller 58 Firms 73 Firms 5233574 T Allowance 5930884 T Allowance
7. Three Balance Balance economic growth and emission reduction Limit compliance cost : within 20% or 200 thousand ton Lower compliance cost: 10% CCER can be used to compliance Balance demand and supply CAP structure Tightened initial allowance Government auction Investors structure Balance difference between sectors: Sector emission reduction factors 2014: united factors--------0.9192 2015:different sector, different factor Abatement cost Abatement potential Competitive ability Emission change tendency of sector
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