Output-based Allowance Allocations under China's Carbon Intensity Target

This paper analyzes the optimal choice of allowance allocation method for the emissions trading system to be established under China's carbon intensity target. Compared with emission-based allocation, output-based allocation could help to realize the industry's optimal welfare in a closed trading system and thus is more appropriate for the emissions trading system to be established in China. However, the output-based allocation does face some challenges in the implementation process. An ex-post adjustment approach is proposed to ensure that the allocation rate equals to the carbon intensity target and a conversion factor approach proposed to convert different types of products into the same measure.