Controlling GHG emissions from the transportation sector through an ETS: institutional arrangements in Shenzhen,China

Many different approaches are needed to achieve reductions in GHG emissions from the transportation sector. Carbon emissions trading schemes (ETSs) are widely used in industry and are effective in reducing the overall social cost of emissions abatement. This article reports the development of a downstream ETS for the transportation sector and its application in Shenzhen, China. The ETS was devised as a mandatory cap-and-trade scheme and, as a first step, was applied to public transportation. An integrated cap was set on the total emissions from buses and taxis: an absolute cap for existing vehicles and a relative increment for new entrants. Allowances were allocated by grandfathering or benchmarking and a ‘reverse mechanism’ was established to encourage the transformation of urban transportation to a low-carbon system. Online fuel consumption monitoring was used to quantify the emissions from vehicles, and the operators were required to surrender enough allowances or credits to account for their verified annual emissions. The mechanisms for allowance trading and carbon offsets provided sufficient flexibility to make emissions abatement and the use of new-energy vehicles and environmentally friendly travel within Shenzhen's urban transportation system economically attractive.

Policy relevance

The transportation sector is becoming a major contributor to the growth in China's GHG emissions. Achieving large reductions in GHG emissions from the transportation sector is a great challenge and requires both technology and policy innovation. The tradable carbon permit is a popular concept in mitigating climate change, but the introduction of a cap-and-trade ETS into the transportation sector is a relatively innovative concept. Shenzhen has launched the first cap-and-trade ETS in a developing country and is currently exploring ways to mitigate carbon emissions by a downstream cap-and-trade ETS for the transportation sector. This article considers the main institutional arrangements and regulatory framework of Shenzhen's transportation carbon ETS. It not only refreshes the theoretical analysis and practical application of downstream cap-and-trade carbon emissions trading in urban transportation, but also provides developing countries with a cost-effective instrument to mitigate their rapid growth in traffic carbon emissions during urbanization.     

Ex-post cap adjustment for China’s ETS: an applicable indexation rule,simulating the Hubei ETS,and implications for a national scheme

China plans to launch its nationwide Emissions Trading Scheme (ETS) in 2017. Uncertainty in China’s future economic growth rate and its effect on underlying emissions may need to be addressed to ensure stability of the scheme. This article investigates an ex-post cap adjustment mechanism for China’s ETS. An applicable rule for indexation of emissions targets to gross domestic product (GDP) adjustment is presented. Such an ex-post optimal emissions intensity target is estimated in an empirical simulation of the Hubei ETS, a large pilot scheme in a fast-growing Chinese province. And its implications for China’s planned national ETS have been discussed. The article finds that by correcting the emissions cap for the difference between expected and realized GDP, the ex-post adjustment can minimize the abatement costs. It can also limit the influence of uncertainties, as it minimizes the standard deviation of realized abatement, abatement cost, and allowance price for a given expected emissions reduction. In addition, with a limited number of parameters requiring estimation, the ex-post cap adjustment mechanism is feasible. It is consistent with the anticipated design of China’s planned national ETS and could be used alongside other design options such as price corridors.

POLICY RELEVANCE

It will be important for the stability of China’s planned national ETS to address uncertainty about future GDP growth which can significantly affect underlying emissions growth. This paper proposes a specific solution, namely an ex-post cap adjustment mechanism for the ETS cap. This method provides flexibility with transparent rules, would be consistent with China’s overall ETS policy design, and could be implemented in practice as the required parameters can be readily estimated.     

Assessing the EU ETS with a bottom-up,multi-sector model

The European Emissions Trading System (EU ETS) is the central pillar of the EU response against climate change. This trading mechanism is considered, from the theoretical point of view, as the most cost-effective method to reduce GHG. However, previous studies show that the agents who participate in these markets may behave in a way that may lead to inefficient CO₂ prices, creating doubts about the static and dynamic efficiency of the system. This article analyses these possible anomalies by first trying to model the ETS in a more realistic way, addressing some of the limitations of previous models, and second, by comparing the results with real market transactions. For this, a bottom-up, multi-sector model has been built, which represents the EU ETS in an integrated, cross-sectoral way, paying particular attention to the interactions among the most emissions intensive industries. The results show the benefits of this modelling approach and how it better reflects real market conditions. Some preliminary conclusions regarding the behaviour of the agents in the ETS market are also presented.

POLICY RELEVANCE

Low allowance prices in the EU ETS have put into question the dynamic efficiency of the EU ETS system, prompting various ideas for structural reform. However, determining the right reform also requires estimating correctly how agents will respond to it. This article proposes a tool to realistically simulate the EU ETS under the assumption of rational agents, and compare it to real market outcomes, in order to understand better the behaviour of agents in this carbon market, and therefore how to design better policies.     

The Korean emissions trading scheme: business perspectives on the early years of operations

Korea’s domestic emissions trading scheme commenced in January 2015. It targeted mainly industrial and power sectors, and compelled companies to transform how they manage energy efficiency and mitigate GHGs. This study sets out to explore how Korean companies evaluated their allocation position and engaged in emissions trading in the first compliance period, and to identify their views on trading barriers and policy expectations at the start of emissions trading. Questionnaire surveys and on-site interviews targeting Korean companies under the Korean emissions trading scheme were conducted at the start of operations (February to March 2015) and after the first compliance year (May 2016), respectively. Actual operation results are observed and compared with the survey findings. This study extrapolates implications for policy and presents suggestions for the government and the target companies in terms of how to improve the current emissions trading scheme in order to further stimulate emissions trading.

POLICY RELEVANCE

This study attempts to bridge the gap between companies and government policy in operating the domestic emission trading scheme in Korea. Empirical results, based on analysis of company-level data, reveal how businesses perceive K-ETS and how this relates to the operating results, which saw only limited trading of surplus emissions taking place in the early phase. Key barriers to active trading identified in the study include supply–demand imbalance, policy uncertainty and lack of preparedness of companies over carbon pricing. These barriers could be addressed by improved transparency of allowance allocation methods, possibly restricting carry-over of surplus allowances, ending policy uncertainty and providing more information to companies that can support companies’ policy understanding of the carbon pricing based on the market mechanism. Targeted companies should proactively participate in emissions trading in the early phase, in order to learn from it and prepare for the future introduction of auctioning.     

Effectiveness of pilot carbon emissions trading systems in China

China is in the process of establishing a national emissions trading system (ETS). Evaluating the implementation effectiveness of the seven pilot ETSs in China is critical for designing this national system. This study administered a questionnaire survey to assess the behaviour of enterprises covered by the seven ETS pilots from the perspective of: the strictness of compliance measures; rules for monitoring, reporting and verification (MRV); the mitigation pressure felt by enterprises; and actual mitigation and trading activities. The results show that the pilot MRV and compliance rules have not yet been fully implemented. The main factors involved are the lack of compulsory force of the regulations and the lack of policy awareness within the affected enterprises. Most enterprises have a shortage of free allowances and thus believe that the ETSs have increased their production costs. Most enterprises have already established mitigation targets. Some of the covered enterprises are aware of their own internal emission reduction costs and most of these have used this as an important reference in trading. Many enterprises have accounted for carbon prices in their long-term investment. The proportion of enterprises that have participated in trading is fairly high; however, reluctance to sell is quite pervasive in the market, and enterprises are mostly motivated to trade simply in order to achieve compliance. Few enterprises are willing to manage their allowances in a market-oriented manner. Different free allowance allocation methods directly affect the pathways enterprises take to control emissions.

Key policy insights

• In the national ETS, the compulsory force of ETS provisions should be strengthened.

• A reasonable level of free allowance shortage should be ensured to promote emission reduction by enterprises.

• Sufficient information should be provided to guide enterprises in their allowance management to activate the market.

• To promote the implementation of mitigation technologies by enterprises, actual output-based allocation methods should be used.

• The government should use market adjustment mechanisms, such as a price floor and ceiling, to ensure that carbon prices are reasonable and stable, so as to guide long-term low carbon investment.

     

The impact of the Tokyo Metropolitan Emissions Trading Scheme on reducing greenhouse gas emissions: findings from a facility-based study

This paper provides a detailed analysis of the Tokyo Metropolitan Emissions Trading Scheme (Tokyo ETS), Japan’s first emissions trading scheme with mandatory cap initiated by the government of Tokyo. Unlike trading schemes in other countries, the Tokyo ETS covers indirect emissions from the commercial sector. It is well known that a variety of market barriers impede full realization of energy efficiency opportunities, especially in the commercial sector. Experiences with the Tokyo ETS should therefore provide important lessons for the design of climate change mitigation policies, especially when targeting the commercial sector. The emissions from covered entities have been drastically reduced from those at the scheme’s outset, with an average 14% reduction as of the end of the first commitment period of five years (2010–2014) compared with 2009 levels. This paper shows that the Tokyo ETS alone did not cause these reductions; there were other drivers. Among them, the energy savings triggered by the Great East Japan Earthquake in 2011 were crucial. The contribution of credit trading, in contrast, was limited since most of the covered entities reduced emissions by themselves. Through an investigation of official reports, an assessment of the emissions data from the covered entities compared to those of uncovered entities and in-depth interviews with firms covered by the scheme, this paper confirms that the main drivers of emissions reductions by covered entities were separate from the ETS. In fact, the advisory aspect of the scheme seems to be much more important in encouraging energy-saving actions.

Key policy insights

• Most of the observed emission reductions were not caused by the Tokyo ETS alone.

• An advisory instrument was crucial to the effectiveness of the Tokyo ETS.

• The experience of the Tokyo ETS suggests that making full use of the advantages of emissions trading is difficult in the case of the commercial sector.

• Price signals have not provided a stimulus to climate change mitigation actions, which implies that establishing a cap to yield effective carbon prices poses a challenge.

     

Aligning emissions trading and feed-in tariffs in China

In 2013, China launched its domestic pilot emissions trading scheme (ETS) as a cost-effective strategy to reduce CO₂ emissions. Theoretically, the ETS can interact with the feed-in tariffs (FITs) applied to renewable energies (REN). This article presents a simple method to demonstrate how FITs can be adjusted based on the evolution of ETS carbon prices in order to provide a cost-effective climate policy package in China. First, by using provincial data and wind and solar power as examples, it calculates the implicit carbon prices that FITs generate in different Chinese provinces and finds that they are much higher than current carbon prices in the pilot ETS. This shows the necessity of using both instruments to guarantee current level incentives to develop REN for climate change purposes, at least in the short and medium terms. Second, by keeping the annual total carbon price level stable (the sum of the implicit FIT carbon price and the ETS carbon price), and taking into account the cost evolution of REN development, this article demonstrates, for the 2018–2020 period, that FIT should decrease at an annual rate of 3.04–4.63% (for wind) and 7.84–8.87% (for solar) based on different growth rates for progressive national ETS carbon prices.

Policy relevance

There are a number of studies and debates on the interactions between climate policies in Europe in particular, ETS and subsidies for REN. The key issue is that a climate policy package should be cost-efficient and the implementation of one policy should not jeopardise the performance of another. For a country like China, a considerable scale effect on climate target achievement and total cost savings could be produced by the careful design of the climate policy package. FIT and ETS, which are cost-efficient policies if implemented separately, will very probably constitute a major climate policy package in the future in China, which is aiming to limit the use of command-and-control policies. So far, there is some debate on how to reduce FIT for wind power in China due to development cost changes. But discussions are lacking on the linkage between FIT and ETS. This paper fills this gap.     

Free allocation in the 3rd EU ETS period: assessing two manufacturing sectors

This article provides an analysis of the EU Emissions Trading Scheme (ETS) and the harmonized benchmark-based allocation procedures by comparing two energy-intensive sectors with activities in three Member States. These sectors include the cement industry (CEI) and the pulp and paper industry (PPI) in the UK, Sweden, and France. Our results show that the new procedures are better suited for the more homogeneous CEI, in which the outcome of stricter allocation of emissions allowances is consistent between Member States. For the more heterogeneous PPI – in terms of its product portfolios, technical infrastructures, and fuel mixes – the allocation procedures lead to diverse outcomes. It is the lack of product benchmark curves, and the alternative use of benchmark values that are biased towards a fossil fuel-mix and are based on specific energy use rather than emission intensity, which leads to allocations to the PPI that do not represent the average performance of the top 10% of GHG-efficient installations. Another matter is that grandfathering is still present via the historically based production volumes. How to deal with structural change and provisions regarding capacity reductions and partial cessation is an issue that is highly relevant for the PPI but less so for the CEI.

Policy relevance

After an unprecedented amount of consultation with industrial associations and other stakeholders, a harmonized benchmark-based allocation methodology was introduced in the third trading period of the EU ETS. Establishing a reliable and robust benchmark methodology for free allocation that shields against high direct carbon costs, is perceived as fair and politically acceptable, and still incentivizes firms to take action, is a significant challenge. This article contributes to a deeper understanding of the challenges in effectively applying harmonized rules in industrial sectors that are heterogeneous. This is essential for the debate on structural reformation of the EU ETS, and for sharing experiences with other emerging emissions trading systems in the world that also consider benchmark methodologies.     

Interaction between CO2 emissions trading and renewable energy subsidies under uncertainty: feed-in tariffs as a safety net against over-allocation

We study the interactions between a CO₂ emissions trading system (ETS) and renewable energy subsidies under uncertainty over electricity demand and energy costs. We develop an analytical model and a numerical model applied to the European Union electricity market in which renewable energy subsidies are justified only by CO₂ abatement. We confirm that in this context, when uncertainty is small, renewable energy subsidies are not welfare-improving, but we show that when uncertainty is large enough, these subsidies increase expected welfare because they provide CO₂ abatement even in the case of over-allocation, i.e. when the cap is higher than the emissions which would have occurred without the ETS. The source of uncertainty is important when comparing the various types of renewable energy subsidies. Under uncertainty over electricity demand, renewable energy costs or gas prices, a feed-in tariff brings higher expected welfare than a feed-in premium because it provides a higher subsidy when it is actually needed i.e. when the electricity price is low. Under uncertainty over coal prices, the opposite result holds true.

Key policy insights

• Due to the possibility of over-allocation in an ETS, subsidies to renewable energies can increase expected welfare, even when climate change mitigation is the only benefit from renewables taken into account.

• In most cases studied, a feed-in tariff brings a higher expected welfare than a feed-in premium.

• The European Commission guidelines on State aid for energy, which incentivize member States to replace feed-in tariffs by feed-in premiums, should be reconsidered based on these results.

     

The differentiated impact of emissions trading system based on company size

Most countries implementing an emissions trading system (ETS), such as EU member states, California in the US, or South Korea, are generally targeting large sized companies, which consume energy above a specific threshold. However, previous studies using computable general equilibrium (CGE) models have analyzed climate policies without considering company size. This may have led to inaccurate results because the impacts of climate policy would differ depending on the coverage of regulated companies. Accordingly, this study examines the environmental and economic impacts of greenhouse gas emission reduction policies, assuming policy results vary by firm size, as covered by the Korean emission trading system. To this end, a CGE model with a separate social accounting matrix based on company size is used to compare three scenarios that reflect different types of carbon pricing methods. The results show that greenhouse gases will be reduced to a lower extent and utility will decrease more if mitigation policies are only imposed to large companies.

Key policy insights

• Carbon pricing policies should consider the different impacts on companies of different sizes and industry sectors.

• Without considering the different sizes of companies covered by an ETS, the expected carbon price and its economic impact will be underestimated.

• Small and medium-sized companies will face more negative impacts than large companies in some industry sectors under an ETS, even if the mitigation burden is only faced by large companies.

     

Carbon taxes and greenhouse gas emissions trading systems: what have we learned?

Systematic evidence relating to the performance of carbon pricing – carbon taxes and greenhouse gas (GHG) emissions trading systems (ETSs) – is sparse. In 2015, 17 ETSs were operational in 55 jurisdictions while 18 jurisdictions collected a carbon tax. The papers in this special thematic section review the performance of many of these instruments over the 2005–2015 period. The performance of existing carbon taxes and GHG ETSs can help policy makers make informed choices about whether to introduce these instruments and to improve their design. The purpose of carbon pricing instruments is to reduce GHG emissions cost effectively. Assessing their performance is difficult because emissions are also affected by other policies and exogenous factors such as economic conditions. Carbon taxes in Europe prior to 2008 and in British Columbia reduced emissions from business-as-usual but actual emissions continued to rise. Since 2008 emissions subject to European carbon taxes have declined, but in most countries, other mitigation policies have probably contributed more to the reductions than the carbon taxes. Emissions subject to ETSs, with the exception of four systems without emissions caps, have declined. The ETSs contributed to the emissions reductions, but their share of the overall reduction is not known. Most tax rates are low relative to levels thought to be needed to achieve climate change objectives. Few jurisdictions regularly adjust their tax rates. All ETSs have accumulated surplus allowances and implemented measures to reduce these surpluses. The largest ETSs now specify annual reductions in their emissions cap several years into the future. Emissions trading system allowance prices are generally lower than the tax rates.

Key policy insights

• Theoretical discussions usually portray carbon taxes and GHG ETSs as alternatives. In practice, a jurisdiction often implements both instruments to address emissions by different sources.

• Designs of ETSs have evolved based on experience shared bilaterally and via dedicated institutions.

• Carbon tax designs, in contrast, have hardly evolved and there are no institutions dedicated to sharing experience.

• Every jurisdiction with an ETS and/or carbon tax also has other policies that affect its GHG emissions.

     

Compliance of the Parties to the Kyoto Protocol in the first commitment period

This article provides an ex post analysis of the compliance of the Parties to the Kyoto Protocol during the first commitment period (2008–2012) based on the final data for national GHG emissions and exchanges in carbon units that became available at the end of 2015. On the domestic level, among the 36 countries that fully participated in the Kyoto Protocol, only nine countries emitted higher levels of GHGs than committed and therefore had to resort to flexibility mechanisms. On the international level – i.e. after the use of flexibility mechanisms – all Annex B Parties are in compliance. Countries implemented different compliance strategies: purchasing carbon units abroad, stimulating the domestic use of carbon credits by the private sector and incentivizing domestic emission reductions through climate policies.

Overall, the countries party to the Protocol surpassed their aggregate commitment by an average 2.4 GtCO₂e yr^–1. Of the possible explanations for this overachievement, ‘hot-air’ was estimated at 2.2 GtCO₂e yr^–1, while accounting rules for land use, land-use change and forestry (LULUCF) further removed 0.4 GtCO₂e yr^–1 from the net result excluding LULUCF. The hypothetical participation of the US and Canada would have reduced this overachievement by a net 1 GtCO₂e yr^–1. None of these factors – some of which may be deemed illegitimate – would therefore on its own have led to global non-compliance, even without use of the 0.3 GtCO₂e of annual emissions reductions generated by the Clean Development Mechanism. The impact of domestic policies and ‘carbon leakage’ – neither of which is quantitatively assessed here – should not be neglected either.

Policy relevance

Given the ongoing evolution of the international climate regime and the adoption of the Paris Agreement in December 2015, we believe that there is a need to evaluate the results of the first commitment period of the Kyoto Protocol. To our knowledge there has been no overarching quantitative ex post assessment of the Kyoto Protocol based on the final emissions data for 2008–2012, which became available in late 2015. This article attempts to fill this gap, focusing on the domestic and international compliance of the Parties to the Kyoto Protocol in the first commitment period.     

Options to overcome the barriers to pricing European agricultural emissions

Although agriculture could contribute substantially to European emission reductions, its mitigation potential lies untapped and dormant. Market-based instruments could be pivotal in incentivizing cost-effective abatement. However, sector specificities in transaction costs, leakage risks and distributional impacts impede its implementation. The significance of such barriers critically hinges on the dimensions of policy design. This article synthesizes the work on emissions pricing in agriculture together with the literature on the design of market-based instruments. To structure the discussion, an options space is suggested to map policy options, focusing on three key dimensions of policy design. More specifically, it examines the role of policy coverage, instruments and transfers to farmers in overcoming the barriers. First, the results show that a significant proportion of agricultural emissions and mitigation potential could be covered by a policy targeting large farms and few emission sources, thereby reducing transaction costs. Second, whether an instrument is voluntary or mandatory influences distributional outcomes and leakage. Voluntary instruments can mitigate distributional concerns and leakage risks but can lead to subsidy lock-in and carbon price distortion. Third, the impact on transfers resulting from the interaction of the Common Agricultural Policy (CAP) with emissions pricing will play a key role in shaping political feasibility and has so far been underappreciated.

POLICY RELEVANCE

Following the 2015 Paris Agreement, European climate policy is at a crossroads. Achieving cost-effectively the 2030 and 2050 European targets requires all sectors to reduce their emissions. Yet, the cornerstone of European climate policy, the European Union Emissions Trading System (EU ETS), covers only about half of European emissions. Major sectors have been so far largely exempted from carbon pricing, in particular transport and agriculture. While transport has been increasingly under the spotlight as a possible candidate for an EU ETS sectoral expansion, policy discussions on pricing agricultural emissions have been virtually absent. This article attempts to fill this gap by investigating options for market-based instruments to reduce agricultural emissions while taking barriers to implementation into account.     

The political roots of divergence in carbon market design: implications for linking

There is a substantial literature on optimal emissions trading system (ETS) designs, but relatively little on how organized political interests affect the design and operation of these economic instruments. This article looks systematically at the political economy of the diffusion of ETS designs and explores the implications for carbon-market linking. Contrary to expectations of convergence – as has been observed in many areas where economic policy diffuses across markets – we found substantial divergence in the design and implementation of ETS across the nine systems examined. The architects of these different systems are aware of other designs, but they have purposely adjusted designs to reflect local political and administrative goals. Divergence has sobering implications for visions of ubiquitous linkages and the emergence of a global carbon market that, to date, have been predicated on the assumption that designs would converge. More such ‘real world’ political economy analysis is needed to understand how political forces, mainly within countries, act as strong intervening variables that affect instrument design, implementation and effectiveness.

Key policy insights

• Our finding of design divergence indicates that policy efforts aimed at achieving integrated international markets are unlikely to be successful.

• Visions of carbon market linkage will need to confront the reality that there are well-organized political coalitions, anchored in the status quo, that prefer divergence.

• In linking ETS, policy-makers should devote more attention to preventing excessive capital flows that can undermine political support for linkage, while also creating incentives for convergence in trading rules over time.

     

China’s national carbon emissions trading scheme: lessons from the pilot emission trading schemes,academic literature,and known policy details

Upon completion, China’s national emissions trading scheme (C-ETS) will be the largest carbon market in the world. Recent research has evaluated China’s seven pilot ETSs launched from 2013 on, and academic literature on design aspects of the C-ETS abounds. Yet little is known about the specific details of the upcoming C-ETS. This article combines currently understood details of China’s national carbon market with lessons learned in the pilot schemes as well as from the academic literature. Our review follows the taxonomy of Emissions Trading in Practice: A Handbook on Design and Implementation (Partnership for Market Readiness & International Carbon Action Partnership. (2016). Retrieved from www.worldbank.org): The 10 categories are: scope, cap, distribution of allowances, use of offsets, temporal flexibility, price predictability, compliance and oversight, stakeholder engagement and capacity building, linking, implementation and improvements.

Key policy insights

• Accurate emissions data is paramount for both design and implementation, and its availability dictates the scope of the C-ETS.

• The stakeholder consultative process is critical for effective design, and China is able to build on its extensive experience through the pilot ETSs.

• Current policies and positions on intensity targets and Clean Development Mechanism (CDM) credits constrain the market design of the C-ETS.

• Most critical is the nature of the cap. The currently discussed rate-based cap with ex post adjustment is risky. Instead, an absolute, mass-based emissions cap coupled with the conditional use of permits would allow China to maintain flexibility in the carbon market while ensuring a limit on CO₂ emissions.

     

Challenges to the development of carbon markets in China

China has introduced several pilot emission trading schemes to build the basis for a national scheme. The potential scale of this initiative raises prospects for a regional carbon trading network as a way to further engage other major Asian economies. However, the Chinese carbon markets rest upon a unique political-economic context and institutional environment that are likely to limit their development and viability. This article offers an overview of such structural economic and political constraints. Four main challenges are identified, namely, inadequate domestic demand, limited financial involvement, incomplete regulatory infrastructure, and excessive government intervention. The first two challenges concern economic dimensions and may be partially addressed by the incentives created by the newly introduced emission trading schemes. The other two are more deeply entrenched in the dominant political system and governing practice. They require fundamental changes to the ways in which the state and the market interact. The success of China's carbon market reform depends crucially on the ability of the ongoing efforts to transform the distorted state–market relationship.

Policy relevance

The burgeoning carbon markets offer opportunities for emissions mitigation at lower costs and enable circulation of a new form of capital, i.e. carbon credits, across borders. China accounts for a gigantic share of global GHG emissions and has the potential to significantly scale up these opportunities. There are clear implications for market developers and participants worldwide, including climate policy makers who attempt to link their emission trading schemes to other schemes, firms who seek to take advantage of the inexpensive carbon offsets generated in developing countries, international financial institutions who endeavour to establish their business in an emerging major carbon market, etc. This article can inform their decisions by identifying key issues that may undermine their ability to achieve these goals. Policy makers and stakeholders will benefit from this analysis, which shows how the Chinese carbon markets operate in ways that may be different from their experience elsewhere.     

Convergence of per capita carbon dioxide emissions: implications and meta-analysis

There is a rich empirical literature testing whether per capita carbon dioxide emissions tend to converge over time and across countries. This article provides a meta-analysis of the results from this research, and discusses how carbon emissions convergence may be understood in, for instance, the presence of international knowledge spillovers and policy convergence. The results display evidence of either divergence or persistent gaps at the global level, but convergence of per capita carbon dioxide emissions between richer industrialized countries. However, the results appear sensitive to the choice of data sample and choice of convergence concept, e.g. stochastic convergence versus β-convergence. Moreover, peer-reviewed studies have a higher likelihood of reporting convergence in carbon dioxide emissions compared to non-refereed work.

POLICY RELEVANCE

The empirical basis for an egalitarian rule of equal emissions per capita in the design of global climate agreements is not solid; this supports the need to move beyond single allocation rules, and increase knowledge about the impacts of combined scenarios. However, even in the context of the 2015 Paris Agreement with its emphasis on voluntary contributions and ‘national circumstances’, different equity-based principles could serve as useful points of reference for how the remaining carbon budget should be allocated.     

Climate policy strength compared: China,the US,the EU,India, Russia,and Japan

The few systematic international comparisons of climate policy strength made so far have serious weaknesses, particularly those that assign arbitrary weightings to different policy instrument types in order to calculate an aggregate score for policy strength. This article avoids these problems by ranking the six biggest emitters by far – China, the US, the EU, India, Russia, and Japan – on a set of six key policy instruments that are individually potent and together representative of climate policy as a whole: carbon taxes, emissions trading, feed-in tariffs, renewable energy quotas, fossil fuel power plant bans, and vehicle emissions standards. The results cast strong doubt on any idea that there is a clear hierarchy on climate policy with Europe at the top: the EU does lead on a number of policies but so does Japan. China, the US, and India each lead on one area. Russia is inactive on all fronts. At the same time climate policy everywhere remains weak compared to what it could be.

Policy relevance

This study enables climate policy strength, defined as the extent to which the statutory provisions of climate policies are likely to restrict GHG emissions if implemented as intended, to be assessed and compared more realistically across space and time. As such its availability for the six biggest emitters, which together account for over 70% of global CO₂ emissions, should facilitate international negotiations (1) by giving participants a better idea of where major emitters stand relative to each other as far as climate policy stringency is concerned, and (2) by identifying areas of weakness that need action.     

The (ir)relevance of transaction costs in climate policy instrument choice: an analysis of the EU and the US

This article assesses the relevance of ex post transaction costs in the choice of climate policy instruments in the EU (focusing mainly on the example of Germany) and the US. It reviews all publicly available empirical ex post transaction cost studies of climate policy instruments broken down by the main private and public sector cost factors and offers hypotheses on how these factors may scale depending on instrument design and other contextual factors. The key finding from the evaluated schemes is that it is possible to reject the hypothesis that asymmetries in ex post transaction costs across instruments are large and, thus, play a pivotal role in climate policy instrument choice. Both total and relative ex post transaction costs can be considered low. This conjecture differs from the experience in other areas of environmental policy instruments where high total transaction costs are considered to be important factors in the overall assessment of optimal environmental policy choice. Against this background, the main claim of this article is that in climate policy instrument choice, ex post transaction cost considerations play a minor role in large countries that feature similar institutional characteristics as the EU and the US. Rather, the focus should be on the efficiency properties of instruments for incentivizing abatement, as well as equity and political economy considerations (and other societally relevant objectives). In order to inform transaction cost considerations in climate policy instrument choice in countries that adopt new climate policies, more data would be desirable in order to enable more robust estimates of design- and context-specific transaction-cost scaling factors.

Policy relevance

The findings of this study can help inform policy makers who plan to set up novel climate policy instruments. The results indicate that ex post transaction costs play a minor role for large countries that feature similar institutional characteristics as the EU and the US. For instrument design the focus should rather be on efficiency properties of instruments in incentivizing abatement, as well as equity and political economy considerations (and other societally relevant objectives).