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Rate-Based Emissions Trading with Overlapping Policies: Insights from Theory and an Application to China

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dc.contributor.authorFischer, Carolyn
dc.contributor.authorQu, Chenfei
dc.contributor.authorGoulder, Lawrence H.
dc.date.accessioned2024-08-27T13:15:56Z
dc.date.available2024-08-27T13:15:56Z
dc.date.issued2024-08-27
dc.description.abstractJurisdictions that rely on emissions trading to control emissions often utilize other environmental or energy policies as well, including policies to support renewable energy and reduce energy consumption. Overlapping policies produce economic interactions that can lead to quite different outcomes from what might be predicted after examining individual policies separately. Prior literature on policy interactions has primarily focused on cap-and-trade systems, where aggregate emissions are fixed by regulation but emissions prices respond. However, jurisdictions are increasingly turning to alternative forms of emissions markets, including a range of rate-based emissions trading systems, in which both emissions quantities and prices are flexible and the significance of policy interactions is less understood. This paper extends the literature by considering the outcomes under a range of emissions trading systems—not only cap-and-trade, but also several forms of tradable performance standards—and under a variety of overlapping policies, including subsidies to renewables and taxes on electricity. An analytical model stylized on the electricity sector demonstrates that an overlapping subsidy to renewable energy drives down emission prices and expands output under all types of emissions trading systems, but emissions quantities differ with tradable performance standards—emissions increase with renewable subsidies under a uniform, sectorwide tradable performance standard but decrease when the performance standard only covers emitters, excluding clean sources from receiving tradable credits. Taxing electricity consumption reduces emission prices and total output under all types of emissions trading systems and reduces emissions under all tradable performance standards. With cap-and-trade, the presence of an overlapping renewables subsidy or electricity consumption tax implies higher efficiency costs. Under certain tradable performance standards, however, these measures can reduce distortions and enhance cost-effectiveness. A numerical general equilibrium model offers quantitative assessments of the impacts of overlaps on emissions, production, prices, and costs, under China’s planned emissions trading system and alternative designs. The overlaps in China’s current stated policy for 2020 to 2035 reduce the cost per ton of abatement of its system of differentiated emitter performance standards by 20–30 percent; optimizing renewable portfolio standards could further reduce costs by 10 percent, and transitioning to uniform benchmarks for emitting power generators could save another 10–15 percent. Still, cap-and-trade without overlapping policies would be most cost-effective. The findings highlight the need to consider the choice of emissions trading systems and overlapping policies together when undertaking reforms.en
dc.identifierhttp://documents.worldbank.org/curated/en/099733008212419312/IDU12092fd8d16e4014fe21b9b115230cfba2a5f
dc.identifier.doi10.1596/1813-9450-10872
dc.identifier.urihttps://hdl.handle.net/10986/42092
dc.languageEnglish
dc.language.isoen_US
dc.publisherWashington, DC: World Bank
dc.relation.ispartofseriesPolicy Research Working Paper; 10872
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttps://creativecommons.org/licenses/by/3.0/igo/
dc.subjectEMISSIONS TRADING
dc.subjectMARKET-BASED REGULATIONS
dc.subjectSUBSIDIES
dc.subjectRENEWABLE ENERGY
dc.subjectGOVERNMENT POLICIES
dc.subjectAFFORDABLE AND CLEAN ENERGY
dc.subjectSDG 7
dc.subjectPEACE, JUSTICE AND STRONG INSTITUTIONS
dc.subjectSDG 16
dc.titleRate-Based Emissions Trading with Overlapping Policiesen
dc.title.subtitleInsights from Theory and an Application to Chinaen
dc.typeWorking Paper
dspace.entity.typePublication
okr.crossref.titleRate-Based Emissions Trading with Overlapping Policies: Insights from Theory and an Application to China
okr.date.disclosure2024-08-27
okr.date.lastmodified2024-08-21T00:00:00Zen
okr.doctypePolicy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/099733008212419312/IDU12092fd8d16e4014fe21b9b115230cfba2a5f
okr.guid099733008212419312
okr.identifier.docmidIDU-2092fd8d-6e40-4fe2-b9b1-5230cfba2a5f
okr.identifier.doi10.1596/1813-9450-10872
okr.identifier.doihttps://doi.org/10.1596/1813-9450-10872
okr.identifier.externaldocumentum34380085
okr.identifier.internaldocumentum34380085
okr.identifier.reportWPS10872
okr.import.id5166
okr.importedtrueen
okr.language.supporteden
okr.pdfurlhttp://documents.worldbank.org/curated/en/099733008212419312/pdf/IDU12092fd8d16e4014fe21b9b115230cfba2a5f.pdfen
okr.region.administrativeEast Asia and Pacific
okr.region.countryChina
okr.topicEnergy::Energy Policies & Economics
okr.topicEnergy::Energy Trade
okr.topicEnergy::Energy Consumption
okr.unitDEC-Sustainability & Infrastruct (DECSI)
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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