China Policy Journal Volume 1, Number 1, Fall 2018 | Page 28
Assessing the Implementation of Local
Emission Trading Schemes in China:
Econometric Analysis of Market Data
Lili Li 1
China Policy Journal • Vol. 1, No. 1 • Fall 2018
Abstract
Emission trading scheme (ETS) has been used for reducing emissions
of industries in developed countries since the 1990s. This
study contributes to existing research by focusing on the implementation
of local ETSs for reducing carbon dioxide (CO 2
) emissions
in the context of China. Based on time-series analysis techniques,
the study investigates into the market dynamics of the local ETSs in
China from their launching dates to 30 June 2017, addressing the
relations between energy prices and the prices of China’s CO 2
emission
allowance (CEA). The price values of CEA and the level of
trading volumes vary across the ETS pilots due to their differences
in policy features, local business environment and governments’
support. Between the two provincial ETSs, Hubei ETS had less
volatile price and larger weekly trading volume, while Guangdong
ETS had higher CEA price on average. Among the five city ETSs,
Tianjin and Chongqing ETSs were not so market-oriented considering
their lower prices and much less active trading activities. The
regression analyses found that the links between energy prices and
CEA prices were different among local ETSs as well, which may
be because of different demand and supply dynamics in the ETS
markets and energy markets. There was no Granger causality from
energy prices to CEA prices in Guangdong or Hubei. With respect
to the city ETSs, the steam coal price granger caused the CEA price
in Shanghai, and the changes in coal price had a negative shortterm
effect on the changes in CEA price, indicating that an increase
in coal price could arrest coal associated pollution due to a substitution
of coal with less carbon-intensive fuels (e.g. natural gas).
In Beijing, the results show that the international oil price granger
caused the CEA price, and there was a positive effect of the oil price
changes on the CEA price changes in the short-run, implying a
1
Lee Kuan Yew School of Public Policy, National University of Singapore; [email protected]
25
doi: 10.18278/cpj.1.1.2