Carbon trade
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The Role and Impact of Carbon Trading in Emission Reduction
Introduction to Carbon Trading
Carbon trading, also known as emissions trading, is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants. This system allows countries or companies to buy or sell carbon emission allowances, thus creating a financial motivation to reduce greenhouse gas emissions.
Economic and Environmental Impact of Carbon Trading in China
Economic Benefits
Carbon trading has shown significant potential in boosting economic output in China's industrial sectors. Studies indicate that sectoral trading (ST) and sectoral-and-temporal trading (STT) schemes could increase industrial value-added by 55.17% and 73.76%, respectively, during the period from 2006 to 2015. This translates to potential gains of 268.02 and 612.26 trillion yuan, respectively1.
Emission Reductions
The same studies highlight that these trading schemes could reduce carbon dioxide emissions by 17.17 and 19.22 billion tonnes, respectively, accounting for 58.30% and 65.25% of total emissions reduction in the industrial sector1. Additionally, the carbon intensity of industrial sectors would decrease significantly under these schemes, demonstrating the effectiveness of carbon trading in reducing emissions1.
Policy Effectiveness and Carbon Neutrality
Policy Evaluation
The Carbon Emission Trading Scheme (ETS) is recognized as an effective policy tool for promoting energy conservation and emission reduction. Empirical studies using the synthetic control method have shown that carbon trading significantly improves carbon and energy-carbon performance, making it a robust strategy for achieving carbon neutrality2.
Long-term Goals
China's commitment to achieving carbon neutrality by 2060 underscores the importance of carbon trading as a policy measure. The positive role of carbon trading in reducing emissions and promoting energy efficiency is crucial for meeting these long-term environmental goals2.
Challenges and Future Developments
Technical and Non-Technical Obstacles
Despite the benefits, the expansion of carbon trading faces several challenges. These include the need for technical harmonization of different trading systems, clear regulatory and policy signals, and stable political and economic environments. The global economic turmoil and lack of international agreements on climate change further complicate the expansion of emissions trading4.
Industry Involvement
The involvement of industry is critical for the success of carbon trading. As markets for greenhouse gas emissions allowances grow, industries must engage in defining and shaping these markets to protect their interests and ensure the effectiveness of trading schemes8.
Comparative Analysis: Carbon Tax vs. Carbon Trading
Emission Reduction Efficiency
Comparative studies between carbon tax and carbon trading mechanisms reveal that while both strategies are effective in reducing emissions, the carbon tax has a higher relative emission reduction efficiency over time. This suggests that a carbon tax might be a more straightforward and cost-effective approach for some regions5.
Economic Impact
Carbon trading can negatively affect the output of energy-intensive industries, whereas a carbon tax could leverage the commodity market for price incentives, potentially leading to more efficient emission reductions5.
Conclusion
Carbon trading is a powerful tool for reducing greenhouse gas emissions and promoting economic growth. While it presents several challenges, its benefits in terms of emission reductions and economic gains are substantial. The success of carbon trading schemes in China and other regions highlights the importance of continued policy support, industry involvement, and international cooperation to overcome obstacles and achieve global emission reduction targets.
Sources and full results
Most relevant research papers on this topic
The impact of carbon trading on economic output and carbon emissions reduction in China’s industrial sectors
Carbon trading in China's industrial sectors can boost economic output and reduce carbon dioxide emissions, potentially increasing value-added by 55.17% and 73.76% compared to no-trading schemes.
Highly CitedTowards carbon neutrality by implementing carbon emissions trading scheme: Policy evaluation in China
Carbon trading significantly improves carbon/energy-carbon performance, promoting energy conservation and emission reduction, making it an effective policy tool for achieving carbon neutrality.
Highly CitedCarbon trading in a socialist market economy: Can China make a difference?
China's pilot emission trading schemes show promise, but their viability is uncertain due to the absence of a liberal political-economic system.
Highly CitedCarbon trading: Current schemes and future developments
Carbon trading shows potential for expansion, but technical and non-technical obstacles must be overcome, and the market faces uncertainty due to global economic turmoil and policy shifts.
Highly CitedRethinking the choice of carbon tax and carbon trading in China
Carbon tax is more effective than carbon trading in China, with higher efficiency and reduced negative effects on energy industry output.
Highly CitedTrade in Carbon and Carbon Tariffs
Carbon tariffs can reduce carbon leakage and shift the economic burden of CO2 emission reduction from developed to developing regions, but their global-cost effectiveness remains modest and their effectiveness declines after the financial crisis.
A synthesis of carbon in international trade
Carbon in international trade is primarily driven by fossil fuels, with embodied CO2 emissions being more robust and physical carbon flows more challenging to estimate due to differences in data and definitions.
Highly CitedCarbon trading: time for industry involvement.
Industry should participate in carbon trading now to advance and defend their interests, particularly among producers and users of greenhouse gases other than carbon dioxide.
The unintended impact of carbon trading of China's power sector
Carbon trading in China's power sector reduces CO2 emissions and saves abatement costs, but may cause unintended environmental health damages in some provinces.
The effect of emission trading policy on carbon emission reduction: Evidence from an integrated study of pilot regions in China
Emission trading policies in China have reduced carbon emissions by 16.2%, particularly in developed eastern regions, and a multi-level system using market-based instruments can further control emissions.
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