China Policy Journal Volume 1, Number 1, Fall 2018 | Page 52

Assessing the Implementation of Local Emission Trading Schemes in China
lem of low-level pricing happens at other
existing ETSs as well. As a comparison,
the EUA price in EU-ETS during Phase
II (2008–2012) was about 23.64 $/ton
CO 2
e on average (Daskalakis 2013).
Nonetheless, it decreases to a low level
in Phase III (2013–2020). For instance,
the EUA price was only about 8$/ton
CO 2
e in April 2015 and about 6$/ton
CO 2
e in April 2016 (World Bank 2015;
2016), which were similar to the level of
the CEA price in Shenzhen ETS at that
time. The low-level economic incentive
from ETS was not able to encourage the
regulated enterprises to invest in mitigation
technologies in China (Yang, Li,
and Zhang 2016). The enterprises rather
considered participation in ETS as an
approach to enhance public image and
the ties with governments (Yang, Li, and
Zhang 2016). However, a market-based
policy instrument like ETS tends to be
more acceptable by enterprises than
the traditional command-and-control
approach (Liu et al. 2013). Also, ETS
mobilized a large number of business
actors (emitters and intermediaries), local
officials and researchers to work on
low-carbon strategies and activities. The
cooperative governance network constructed
during the process is likely to
be necessary and more cost efficient for
long-run emission reduction in China.
The price values of CEA and the
level of trading activities vary across the
ETS pilots, which is reasonable considering
the differences in policy design,
local governments’ political will and
local economic context. Among the
city-level ETSs, Chongqing and Tianjin
are not so market-oriented, with lower
CEA prices and less active transactions.
Loose enforcement, the oversupply of
allowances and emphasis on local economic
interests can be the reasons. An
implication is that even though China
is keen to develop the national ETS, it
may work better in some regions than
others at the local level.
When investigating into the
Granger causality from energy prices to
CEA prices, the findings varied among
local ETSs, because of local differences
in market dynamics of CEA and energy
resources. We found no significant
Granger causality from energy price
changes to CEA price changes in the
two provincial level ETSs, Hubei, and
Guangdong. Regarding the city-level
ETSs, we found a Granger causality
from oil price changes to CEA price
changes in Beijing. And, there was a
positive effect of oil price changes on
CEA price changes with the one-week
lag. It implied a short-term substitution
of oil with coal which is cheaper and
more carbon-intensive. In Shanghai,
we found a Granger causality from coal
price changes to CEA price changes in
Shanghai. And the coal price changes
had a negative short-run effect on the
CEA price changes, indicating that an
increase in coal price drives a move
away from coal toward less carbon-intensive
fuels (e.g. natural gas or oil). It
was also found that there was a positive
short-run effect of LNG price changes
on Shanghai CEA price changes, which
is also consistent with the substitution
theory. The scale of the short-run effect
of LNG price is smaller than that of coal
price. This is because the coal consumption
makes up a larger portion of the
energy consumption so that the chang-
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