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