Optimizing the rolling out plan of China’s carbon market

Summary: Although China has developed the world’s largest carbon emissions trading scheme (ETS), there is no official documentation explaining how the current sectoral coverage plan was determined and what sectoral rollout plan is preferred. Here, we contribute to the policy development of the world’s largest carbon market by suggesting a priority list of industries be covered in the ETS. We estimated marginal abatement cost curves using a database of more than two million firms covering over 500 four-digit industries that account for more than 97% of total industrial emissions, and simulating various carbon market scenarios including thermal power, 13 designated, and an additional 50 industries that have high emissions or are covered in other ETSs. Our analysis suggests that the cement industry should be the next sector to be included in China’s ETS. In our revised list, the average abatement cost can be reduced by 39.5–78.3% compared with the business-as-usual scenario.