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Although our knowledge of national carbon emission trading system and green certificate trading system are powerful incentive instruments that can deliver on increasingly ambitious climate targets in China, there remains an uncertainty of systems' structural reforms. This study builds on and extends a well-established dynamic computable general equilibrium (CGE) model to incorporate carbon trading system and green certificate trading system into the modeling framework, simulating a diverse of system development pathways further allows an exploration of the many possible policy effect. Then, using total factor productivity as a comprehensive indicator to asses policy effectiveness, the evolutionary trend of comprehensive effects under different paths are separately evaluated to discover the reforms' optimal range. Our work offers main results: First, these instruments provide a price signal. The introduction of a carbon allowance auction drive up carbon prices, while the implementation of a green certificate punishment and the expansion of the trading scope promote an increase in green certificate prices. Second, all policy scenarios that help reduce carbon emission intensity and optimize the power supply structure. However, in achieving the net-zero goal, the green certificate policy incurs more economic costs than the carbon trading policy. Indeed, the combination of multiple policy tools alleviates the decline of social welfare levels. Third, synergism design among policy tools: the focus should be on carbon trading policy from 2021 to 2030, green certificate trading policy from 2030 to 2050, and strengthened policy from 2050 to 2060. Reform measures within policies may need to be introduced in a timely manner. This study offers specific insights and tailored policy proposals to support policymakers in balancing environmental goals with economic and social needs in light of the aforementioned findings. Fig. 1. Introduction of the research questions Fig. 2. Framework of this paper. [Display omitted] • Carbon emission trading and green certificate trading policies were introduced into a dynamic CGE model. • The comprehensive performance of different scenarios were measured using total factor productivity index. • The policy effects of different scenarios were explored from 2020 to 2060. • The even more effective reform measures were adopt, within a single policy. • A sensible mix were proposed, within different policies. [ABSTRACT FROM AUTHOR]

The trading of carbon emissions is a crucial regulatory method to address environmental pollution issues. This study takes China's carbon emission trading pilot policy established in 2013 as a quasi-natural experiment and uses the DID model to empirically test the urban panel data from 2006 to 2019. The results show that the carbon emission trading pilot policy can effectively reduce urban environmental pollution, and this effect is more noticeable in mid-western cities, northern cities, cities with fewer resources, and large-scale cities. In addition, to address the urban environmental pollution problem through this policy, the government is encouraged to raise its environmental protection awareness and put more effort into the innovation of technology. In general, this study uses carbon emission trading policies from China to confirm that market-based incentive environmental regulation tools can effectively reduce environmental pollution in urban areas. These findings can provide more theoretical support and empirical evidence for the government to use mechanisms of the market to effectively solve pollution problems, improve ecological environment quality, and accelerate the realization of green economy. • The DID model is used to track pilot policy impact on urban environmental pollution. • Carbon emission trading pilot policy can reduce urban environmental pollution. • The government's environmental awareness is the channel of action. • The government's technological innovation efforts are the channel of action. [ABSTRACT FROM AUTHOR]

This paper examines the investment incentives of market-based regulation, focusing on the technology characteristics that different regulatory schemes tend to incentivize. The firms' technology choice is socially optimal if and only if the aggregate emission allowance supply is completely inelastic. Furthermore, in the presence of uncertainty, elastic emission allowance supply, and strictly convex environmental damage, it is optimal to tax investments in technologies that induce a large variance in emissions. Lastly, price elastic supply of emission allowances may either increase or decrease the volatility in the product market, depending on the risk environment the firms face. The results indicate that introduction of permit price-stabilizing measures in an emission trading system will come at the cost of suboptimal technology investments, and may also lead to increased fluctuations in product prices. • I examine investment and technology characteristics induced by environmental regulation. • Firms' technology choice is suboptimal unless the cap on emissions is exogenous. • It is optimal to tax investment in technologies that induce large variance in aggregate emissions. • Elastic emission allowance supply can impact product market volatility. [ABSTRACT FROM AUTHOR]

The Emission Trading Scheme (ETS) provides a market mechanism to mitigate carbon emissions and has been introduced in many countries. Its fundamental idea is to make carbon emissions costly. Consequently, firms undertaking cross-border expansions may have to consider this extra cost when entering markets with an ETS. They may avoid these countries or relocate their investment to countries without an ETS. Using a large sample of international firms between 2002 and 2019, we investigate this issue via a difference-in-difference approach. Our results show that ETS implementation leads to significantly less cross-border merger and acquisition (M&A) deals in the host countries, indicating an avoidance effect or potential carbon leakage. Further analysis reveals that ETS implementation decreases firms' financial performance and increases market risks, both contributing to cross-border M&A decisions. We demonstrate strong evidence of cross-sectoral differences, where carbon-intensive sectors tend to bear higher costs. This study contributes to the environmental economics and finance literature and provides evidence with policy relevance. • This paper explores the effects of Emission Trading Schemes on cross-border M&As. • ETS implementation is associated with a significant reduction in cross-border M&As. • The introduction of ETS can lead to lower financial performance of the acquiring firms. • Climate policy can significantly influence firms' strategic investment decisions. [ABSTRACT FROM AUTHOR]

Subglobal and subnational greenhouse gas policies are often thought to be less effective than comprehensive policies as production and emissions of trade exposed industries may move from the regulated to the unregulated regions, a process referred to as “leakage”. Leakage negates some emission reductions from the regulated regions. We use detailed electricity generation and transmission data to show that this is the case for the Regional Greenhouse Gas Initiative (RGGI), a CO 2 cap-and-trade program for the electricity sector in select Northeastern U.S. states. More specifically, our results indicate that RGGI induced a reduction in coal-fired generation in RGGI states and an increase in NGCC generation in RGGI-surrounding regions. This finding suggests that the pollution haven hypothesis holds for state-level variation in environmental policy, even when compliance costs are low. [ABSTRACT FROM AUTHOR]

In our analytical general equilibrium model, polluting inputs can be substitutes or complements. We study a tax increase on one pollutant where the other faces a tax or permit policy. Our solutions highlight key parameters and welfare effects with gains from abatement plus positive or negative co-benefits from other pollutants in the covered and uncovered sectors. We demonstrate several ways taxes and permits differ. First, the change in taxed pollutant depends on whether the other pollutant faces a tax or permit policy. Also, only with a tax on the other pollutant can a co-benefit arise. The sign of co-benefits depends on the sign of cross-price elasticities and on whether the other pollutant's price is above or below marginal damages. Finally, the other pollutant's tax or permit policy also affects emissions in the uncovered sector (leakage). In a numerical illustration of carbon tax in U.S. electricity, we calculate emissions of CO 2 and SO 2 in both sectors. For plausible parameters, co-benefits are larger than direct [ABSTRACT FROM AUTHOR]

Cap and trade schemes often use a policy of adjustable allowance supply with the intention to stabilize the market for allowances. We investigate whether these policies deliver with a focus on allowance prices. Motivated by existing policies, we study schemes that rely on either the allowance price (price measures) or the surplus of unused allowances (quantity measures) to adjust supply in a dynamic cap and trade market. Compared to emissions trading under a fixed cap, we find that price measures stabilize allowance prices. Quantity measures can be destabilizing. Though phrased in the context of changing interest rates, our results warn more generally against the belief that quantity measures are a suitable instrument to promote a stable cap and trade market. [ABSTRACT FROM AUTHOR]

Resolving the negative externality of environmental pollution has always been a concern in both the theoretical and practical space. To stimulate enterprises to participate in environmental governance actively, China has implemented a series of environmental regulation policies. The Emission Trading Pilot Scheme (ETPS) is an example of such policies implemented to ensure the gradual transition toward marketization. From a micro-enterprise perspective, the study examines how this policy achieves the dual effects of reducing emissions and promoting energy efficiency. We further explore potential channels through which this policy influences the dual effects. We empirically find ETPS to reduce the pollution emissions of enterprises significantly. However, the pollution reduction effect is mainly achieved by encouraging enterprises to strengthen cleaner production rather than through end governance. In addition to bringing environmental dividends, we observe ETPS to improve fossil energy efficiency by about 7.5% indirectly. We conclude by urging policy makers and participants to optimize energy structures and adjust intermediate input as they serve as significant pathways through which ETPS can affect fossil energy efficiency. The ETPS can encourage enterprises to actively step out of their "comfort zone" of environmental governance to be viewed as an effective environmental regulation policy. • The micro impact of Emission Trading Pilot Scheme (ETPS) is assessed. • The ETPS achieves environmental dividends by promoting cleaner production. • The ETPS significantly improves fossil energy efficiency by about 7.5%. • Energy structure and intermediate input are channels to boost energy efficiency. [ABSTRACT FROM AUTHOR]

This paper explores how cross-country differences in environmental regulatory stringency among member states of the world's largest multinational cap-and-trade system, the European Union Emission Trading Scheme (EU ETS), influenced the FDI location choice of listed multinationals (MNEs) regulated by the environmental policy. After controlling for other country characteristics driving FDI location choice, we find that the likelihood of EU ETS-covered MNEs locating new FDI projects in less environmentally stringent member states strongly depends on firm- and industry-specific environmental characteristics during the system's first two phases. Our results are robust to different measures of environmental stringency and provide evidence for the existence of an intra-regional pollution haven effect (PHE). This investment behavior by MNEs is, moreover, only found in the industries least compensated for the environmental costs induced by the policy. This suggests that the EU inadvertently promoted an intra-regional PHE not only by allowing cross-country variation in environmental stringency but also by overly focusing on and compensating for external carbon leakage risk. Our conclusions have major implications for countries and regions currently establishing or implementing an emissions trading system. • We examine the largest multinational cap-and-trade scheme in the world, the EU ETS. • Current research on the pollution haven effect focuses on FDI outside the EU ETS. • We explore intra-EU ETS differences in environmental stringency among member states. • Using a conditional logit model, we find evidence of an intra-regional PHE. • PHE driven by most polluting firms in industries with limited strategic flexibility. [ABSTRACT FROM AUTHOR]

We study the effects of environmental policy commitments in a futuristic world in which solar radiation management (SRM) can be utilized to reduce climate change damages. Carbon and sulfur dioxide emissions (correlated pollutants) can be reduced through tradable permits. We show that if nations simultaneously commit to carbon permit policies, national SRM levels rise with carbon quotas. Alternatively, if they simultaneously commit to SRM policies, the global temperature falls with each unit increase in the global SRM level. A nation always wishes to be a leader in policymaking, but prefers carbon to SRM policymaking. The globe prefers SRM policy commitments. [ABSTRACT FROM AUTHOR]

We present results from laboratory emissions markets designed to investigate the effects of price controls and permit banking on limiting permit price risk. While both instruments reduce between-period price volatility and within-period price dispersion, combining price controls and permit banking yields important benefits. Banking alone produces high permit prices in earlier periods that fall over time, but the combined policy produces lower initial prices and lower volatility. However, banking, price controls, and the combination all produce higher between-period emissions volatility. Hence, for emissions markets that seek to control flow pollutants with strictly convex damages, efforts to limit permit price risk can result in higher expected damage. [ABSTRACT FROM AUTHOR]

Abstract: This paper examines how enforcement affects the structure and performance of emissions trading programs with price controls under uncertainty about firms' abatement costs. The analysis highlights how an enforcement strategy can cause abatement-cost risk to be transmitted to enforcement costs via the price of permits. When this occurs, accommodating the effect of abatement-cost risk with an optimal policy results in higher expected emissions and lower expected permit price than their second-best optimal values. However, it is possible to design an enforcement strategy that shields enforcement costs from abatement-cost risk by tying sanctions directly to permit prices. This enforcement strategy stabilizes enforcement effort, the optimal permit supply and price controls are independent of enforcement costs, and the policy produces the second-best optimal outcome. [Copyright &y& Elsevier]

Abstract: We analyze non-cooperative international climate policy in a setting of political competition by national interest groups. In the first stage, countries decide whether to link their domestic emission permit markets to an international market, which only forms if it is supported by all countries. In the second stage, countries non-cooperatively decide on the number of tradable emission allowances. In both stages, special interest groups try to sway the government in their favor. We find that (i) both the choice of regime and the levels of domestic and global emissions only depend on the aggregate levels of organized stakes in all countries and not on their distribution among individual interest groups and (ii) an increase in lobbying influence by a particular lobby group may backfire by inducing a change towards the lobby group's less preferred regime. [Copyright &y& Elsevier]

Abstract: In this paper, we develop a model of international trade and climate change in which emission discharges arising from production have a feedback effect on national production sectors by impacting upon effective factor endowments. With this context, the objectives are, first, to provide a general characterization of Pareto-efficient climate and trade policies and, second, to examine the possibility – starting from non-Pareto-efficient equilibria – for Pareto-improving environmental policies. We provide conditions under which several particular reforms of carbon taxes are welfare improving. [Copyright &y& Elsevier]

Abstract: The best emissions tax or emissions cap may be an inferior instrument under incomplete regulation (leakage). Without leakage, an intensity standard (regulating emissions per unit of output) is inferior due to an implicit output subsidy. This inefficiency can be eliminated by an additional consumption tax. With leakage, an intensity standard can dominate the optimal emissions tax, since the implicit output subsidy prevents leakage. The addition of a consumption tax improves an intensity standard''s efficiency, may prevent leakage, and may be efficient. Comparing intensity standards to output-based updating shows that the latter dominates if updating is sufficiently flexible. [Copyright &y& Elsevier]

Abstract: The objective of the present paper is to investigate the robustness of the well-known result that pre-set default options determine people''s choices. We do so by conducting a field experiment among environmental economists attending a large international conference on environmental economics. The participants were, at the time of registration, randomly allocated to different treatments related to carbon offsetting. What differs from earlier default studies is that our subjects have good knowledge about the good at hand. We investigate whether the choices of these experienced individuals are affected by a pre-set default option, and we also study the effect of a treatment with no pre-set default option. Our results, together with previous findings, indicate that the effect of a default option attenuates with experience. [Copyright &y& Elsevier]

Abstract: Two important design elements for emission trading programs are whether and to what extent firms are able to bank emissions permits, and how these programs are to be enforced. In this paper we present results from laboratory emissions markets designed to investigate enforcement and compliance when these markets allow permit banking. Banking is motivated by a decrease in the aggregate permit supply in the middle of multi-period trading sessions. Consistent with theoretical insights, our experiments suggest that high permit violation penalties have little deterrence value in dynamic emissions markets, and that the main challenge of enforcing these programs is to motivate truthful self-reports of emissions. [Copyright &y& Elsevier]

Abstract: Under uncertainty, the optimal choice between price and quantity instruments depends on the technology of the regulated firms, which is often private information. We consider an environmental policy that delegates the prices-versus-quantities decision to the firms by offering them the choice between an emissions tax and permit trading. Such an approach is currently used in Swiss climate policy. We provide a detailed characterization of the optimal policy and show that this approach reduces expected social costs compared to a pure tax or permit-trading regime. We demonstrate that an optimal allocation of firms to instruments can be achieved despite substantial informational constraints, and that all firms gain from the introduction of the instrument choice compared to optimally designed single-instrument policies. Furthermore, we discuss the conditions under which this approach is likely to be preferable to a hybrid regulation. [ABSTRACT FROM AUTHOR]

Whether tradable permits are appropriate for use in transition and developing economies—given special social and cultural circumstances, such as the lack of institutions and lack of expertise with market-based policies—is much debated. We conducted interviews and surveyed a sample of firms subject to emissions trading programs in Santiago, Chile, one of the first cities outside the OECD that has implemented such trading. The information gathered allows us to study what factors affect the performance of the trading programs in practice and the challenges and advantages of applying tradable permits in less developed countries. [Copyright &y& Elsevier]

Abstract: Emissions trading schemes where allocations are based on updated baseline emissions give firms less incentive to reduce emissions for a given quota (or allowance) price. Nevertheless, according to Böhringer and Lange [On the design of optimal grandfathering schemes for emission allowances, Europ. Econ. Rev. 49 (2005) 2041–2055], such allocation schemes are cost-effective if the system is closed and allocation rules are identical across firms. In this paper, we show that the cost-effective solution may be infeasible if marginal abatement costs grow too fast. Moreover, if a price cap or banking/borrowing is introduced, the abatement profile is no longer the same as in the case with an auction (or lump-sum allocation). In addition, we show that with allocation based on updated emissions, the quota price will always exceed marginal abatement costs, possibly misguiding policy makers and investors about abatement costs. Numerical simulations indicate that the quota price most likely will be several times higher than marginal abatement costs, unless a significant share of allowances is auctioned. [Copyright &y& Elsevier]

Abstract: This paper uses laboratory experiments to test theoretical predictions concerning compliance behavior in competitive emissions trading programs. We test the hypotheses that both the violations of competitive risk neutral firms and the marginal effectiveness of increased enforcement across firms are independent of differences in their benefits from emissions (abatement costs) and their initial permit allocations. This conclusion suggests that regulators have no conceptual justification for targeting their enforcement effort based on firm-level characteristics. Consistent with theory, we find that violations were independent of parametric differences in emissions benefits. However, subjects who were predicted to buy permits tended to have higher violation levels than those who were predicted to be sellers. Nevertheless, we find no evidence that the marginal effectiveness of enforcement depends on any firm-specific characteristic. We also examine the determinants of compliance behavior under fixed emissions standards. As expected, we find significant differences between compliance behavior under fixed standards and emissions trading programs. [Copyright &y& Elsevier]

This paper analyzes the relative cost-effectiveness of intergovernmental versus intersource cross-border emissions trading when polluting firms are noncompliant. A special focus is placed on the presence of enforcement costs and the associated credibility problem of governmental monitoring. It is shown that without inspection commitment, the intergovernmental system is more cost-effective because the endorsed flexibility in domestic emission taxation serves as a commitment device for building credibility of monitoring. [ABSTRACT FROM AUTHOR]

Grandfathered emissions permits redistribute income to wealthy households by creating firm rents that ultimately accrue to shareholders. Consequently they can be highly regressive, even if the poor do not have large budget shares for polluting goods. Using an analytical model, this paper estimates the burden of emissions permits borne by different income groups under control of power plant emissions of carbon, SO2, and NOx. We also compare the burden borne by poor households under permits with that under emissions taxes, performance standards, technology mandates, and input taxes. And we show how the social costs of policies differ from efficiency costs when society has aversion to inequality. [Copyright &y& Elsevier]

One of the most popular policy mechanisms for greenhouse gas emissions regulation is cap-and-trade which is a market-based approach that has come to dominate partially because of its flexibility. With flexibility, however, comes the potential for the clustering of greenhouse gas emissions. To understand whether emissions trading leads to localized clustering of emissions changes, we perform a systematic, spatio-economic assessment of the European Union Emissions Trading Scheme (EU ETS). We analyze the spatial pattern of emissions changes from individual plants across the EU as well as how the pattern changes during the first two phases of the ETS implementation. Our findings indicate that there was clustering of emissions changes at the EU and country level which peaked at the start of the second phase but declined as the EU ETS matured. We also found that iron and steel, coke ovens, and refining have greater clustering and volatility compared to other industries. Based on the air quality implications of these clustered emissions, certain countries and industry types might need additional attention during the ETS design or redesign process. This study makes a novel contribution by systematically evaluating the spatio-temporal and equity implications of emissions distribution in cap-and-trade systems. • First systematic spatio-temporal assessment of EU ETS emissions changes. • Iron & steel, coke ovens, and refining have greater clustering and volatility. • Emissions changes were spatially concentrated, peaking at the start of phase II. • Emissions clustering should be considered in the design of trading schemes. [ABSTRACT FROM AUTHOR]