Volume 11: Sustainable Energy Solutions for Changing the World: Part III

CARBON ALLOWANCE ALLOCATION, SECTORAL COVERAGE IN THE CARBON MARKET, AND NATIONALLY DETERMINED CONTRIBUTIONS: A CASE STUDY IN CHINA Jihong Zhang, Si Cheng, Shaozhou Qi

Abstract

The carbon market has become an important tool that global countries use to achieve their emission reduction commitments, or Nationally Determined Contributions (NDCs). Sectoral coverage and carbon allowance allocation are the most important considerations in the construction of a carbon market. In this study, we propose a multi-criteria allocation scheme based on the principle of equity, efficiency, and feasibility, considering carbon abatement costs and carbon leakage risks. An improved zero sum gains-data envelopment analysis model in accordance with China’s NDCs is used for allowance allocation. Subsequently, the sectoral coverage choice of the carbon market is proposed. The results of this study are the following: most carbon allowances are concentrated in six sectors; sixteen sectors have major shares of the overall emission reduction; and the allocation method used in this study can help the carbon market reduce emissions at a lower cost, while preventing carbon leakage to a certain extent.

Keywords carbon allowances, carbon market, multi-criteria allocation, Nationally Determined Contributions (NDCs), sectoral coverage, zero sum gains-data envelopment analysis (ZSG-DEA)