How to auction carbon emission allowances? A dynamic simulation analysis of spatiotemporal heterogeneity

Abstract

There is notable variability in carbon emission reduction efforts across different provinces in China, underscoring the need for effective strategies to implement carbon emission allowance auctions. These auctions, as opposed to free allocations, could be more aligned with the principle of “polluter pays.” Focusing on three diverse regions — Ningxia, Beijing, and Zhejiang — this study employs a system dynamics simulation model to explore markets for carbon emissions and green certificates trading. The aim is to determine the optimal timing and appropriate policy intensities for auction introduction. Key findings include: (1) Optimal auction strategies differ among the provinces, recommending immediate implementation in Beijing, followed by Ningxia and Zhejiang. (2) In Ningxia, there’s a potential for a 6.20% increase in GDP alongside a 21.59% reduction in carbon emissions, suggesting a feasible harmony between environmental and economic objectives. (3) Market-related policy variables, such as total carbon allowances and Renewable Portfolio Standards, significantly influence the optimal auction strategies but have minimal effect on carbon auction prices.

Graphical abstract

Keywords

carbon allowances / carbon allowance auctions / carbon emissions trading / Renewable Portfolio Standard / system dynamics

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Competing Interests

The authors declare that they have no competing interests.

Nomenclature
Abbreviations	Variables
CET	Carbon Emissions Trading
TGC	Tradable Green Certificate
RPS	Renewable Portfolio Standard
EU	European Union
ETS	Emissions Trading System
MAC	Marginal abatement cost
CEA	Carbon Emission Allowance
MEE	Ministry of Ecology and Environment of China
NDRC	National Development and Reform Commission
NBS	National Bureau of Statistics
TCE	Tons of coal equivalent
10K-ton	Ten thousand tons
NCETN	National Carbon Emission Trading Network
GWh	Gigawatt hour
B	Billion
Parameters
CECoef	CO2 emission coefficient
CorrCoef	Correction coefficient
Variables
CE	CO2 emissions
CVol	Carbon trading volume
PSREF	Power supply reference value
REAbs	Renewable energy to be absorbed
RECsm	Renewable energy consumption
TECsm	Traditional energy consumption
TCsm	Total electricity consumption
EnvCost	Environmental cost
AbsCost	Absorption cost
CECost	Carbon emission cost
EE	Energy efficiency
CPEN	Carbon penalty
CPEN price	Carbon penalty price
TPEN price	TGC penalty price
UnQty	Unabsorbed quantity
Tvol	TGC volume

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