Institutions and Emissions Trading in China

Institutions—the formal rules and informal norms that shape human interaction ( North 1991 )—have the potential to influence the oper - ation of an emissions trading system ( ETS ). For instance, preexisting economic regulation has been shown to affect firms’ abatement decisions and costs (Fowlie 2010). Transaction costs can also interfere with cost-effective operation by reducing trading levels and increasing abatement costs (Stavins 1995). As China develops a national ETS for carbon dioxide (CO₂) covering multiple energy-intensive sectors, it is important to consider how its design will interact with prevailing institutional features of the country’s economy. This paper focuses specifically on the role of state control of industry, one source of heterogeneity that will affect efforts to establish an ETS in China’s vast and diverse economic system

Markets versus Regulation: The Efficiency and Distributional Impacts of U.S. Climate Policy Proposals

Regulatory measures have proven the favored approach to climate change mitigation in the U.S., while market-based policies have gained little traction. Using a model that resolves the U.S. economy by region, income category, and sector-specific technology deployment opportunities, this paper studies the magnitude and distribution of economic impacts under regulatory versus market-based approaches. We quantify heterogeneity in the national response to regulatory policies, including a fuel economy standard and a clean or renewable electricity standard, and compare these to a cap-and-trade system targeting carbon dioxide or all greenhouse gases. We find that the regulatory policies substantially exceed the cost of a cap-and-trade system at the national level. We further show that the regulatory policies yield large cost disparities across regions and income groups, which are exaggerated by the difficulty of implementing revenue recycling provisions under regulatory policy designs.Massachusetts Institute of Technology. Joint Program on the Science & Policy of Global ChangeMIT Energy InitiativeUnited States. Dept. of Energy (Integrated Assessment Grant DE-FG02-94ER61937

Equity and emissions trading in China

China has embarked on an ambitious pathway for establishing a national carbon market in the next 5–10 years. In this study, we analyze the distributional aspects of a Chinese emissions-trading scheme from ethical, economic, and stated-preference perspectives. We focus on the role of emissions permit allocation and first show how specific equity principles can be incorporated into the design of potential allocation schemes. We then assess the economic and distributional impacts of those allocation schemes using a computable general equilibrium model with regional detail for the Chinese economy. Finally, we conduct a survey among Chinese climate-policy experts on the basis of the simulated model impacts. The survey participants indicate a relative preference for allocation schemes that put less emissions-reduction burden on the western provinces, a medium burden on the central provinces, and a high burden on the eastern provinces. Most participants show strong support for allocating emissions permits based on consumption-based emissions responsibilities.China. Ministry of Science and Technology (Grant No. 2012BAC20B07)Rio Tinto (Group

Superfund: An Assessment of Superfund Site Remedy Selectioin and Implementation

Since its inception in 1980, the U.S. Environmental Protection Agency’s (EPA) Superfund Program has served as the primary mechanism for coordinating the remediation of sites contaminated with hazardous substances. Although the program has successfully overseen cleanup at hundreds of sites, experts have identified a number of weaknesses in the remedy selection and implementation processes. Our study focuses on two weaknesses that have been identified at individual Superfund sites in the previous literature: Remedy Selection: • Selection of non-permanent remedies over permanent remedies Remedy Implementation: • Inconsistency and non-transparency shown in the documentation of cleanup objectives, site cleanup progress, and problems during remedy implementation Although these weaknesses were well documented in previous literature, our group found little evidence that the underlying cause of these weaknesses had been addressed. Our study adds to the current understanding of these weaknesses by investigating their origins using established policy and engineering systems analysis techniques. We have based our analysis on three Superfund site case studies. We offer several recommendations that address the observed weaknesses in site remedy selection and implementation. Lastly, we include suggestions for areas in which further inquiry may be useful

Prospects for PHEVs in the United States : a general equilibrium analysis

Thesis (S.M. in Technology and Policy)--Massachusetts Institute of Technology, Engineering Systems Division, Technology and Policy Program; and, (S.M.)--Massachusetts Institute of Technology, Dept. of Civil and Environmental Engineering, 2008.Includes bibliographical references (p. 72-76).The plug-in hybrid electric vehicle (PHEV) could significantly contribute to reductions in carbon dioxide emissions from personal vehicle transportation in the United States over the next century, depending on the cost-competitiveness of the vehicle, the relative cost of refined fuels and electricity, and the existence of an economy-wide carbon emissions constraint. Using a computable general equilibrium model, I evaluated the potential for the PHEV to enter the U.S. personal vehicle market before 2100 and alter electricity output, refined oil consumption, carbon dioxide emissions, and the economic welfare losses associated with the imposition of a strict climate policy. The PHEV is defined by its ability to run on battery-stored electricity supplied from the grid as well as on refined fuel in an internal combustion engine. Sectors that produce PHEV transportation as well as other electric-drive vehicle technologies were added to the MIT Emissions Prediction and Policy Analysis (EPPA) Model as a perfect substitute for internal combustion engine (ICE)-only vehicles. Engineering cost estimates for the PHEV, as well as information about the pre-existing fleet, were used to specify PHEV sector input shares and substitution elasticities in the model. Based on the model results, several conclusions emerged from this work. First, lower vehicle cost markups may hasten PHEV market entry, especially in the absence of a climate policy. Second, in the short term, the lower cost of electricity compared with refined fuels on a per mile basis is likely to favor adoption of vehicles with longer all-electric ranges. However, realizing the electricity advantage will depend on whether or not current battery cost and performance limitations can be overcome. Third, the availability of biofuels as a carbon neutral fuel substitute could delay PHEV market entry, especially when a climate policy is imposed.(cont.) Fourth, large-scale adoption of the PHEV will increase electricity demand, reduce refined oil consumption, and could offset the economic welfare cost of pursuing a climate policy, especially if biofuels are not available. Fifth, realizing the maximum carbon emissions reduction potential of grid-charged electric-drive vehicles such as the PHEV will depend on concurrent reductions in power sector emissions.by Valerie Jean Karplus.S.M

Quantifying Coal Power Plant Responses to Tighter SO₂ emissions Standards in China

We evaluate the impact of China’s new air pollution standards on sulfur dioxide (SO2) emissions by comparing newly available data from Continuous Emissions Monitoring Systems (CEMS) at coal power plants with satellite measures. First, we show that following the July 2014 deadline for implementing tighter emissions standards, stack concentrations of SO2 reported by CEMS declined by 13.9%. Second, on average the ratios of the declines of SO2 measures in the satellite data and the CEMS data are about 0.5. However, the degree of correspondence between the two data sources varies by policy stringency, with weak correspondence found in key regions facing the toughest new limits. Third, large plants achieved compliance earlier than small (typically) power and heat cogeneration plants. To achieve continued air quality improvement, our results suggest a need for increased scrutiny of emissions data quality and monitoring practices and clear long-term targets. Keywords: air pollution; satellite; high-frequency monitoring; China; polic

Evaluating India's Climate Targets: The Implications of Economy-wide and Sector-Specific Policies

We employ a numerical economy-wide model of India with energy sector detail to evaluate the impact of achieving India's commitments to the Paris Climate Agreement. We simulate targets for reducing CO₂ emissions intensity of GDP via an economy-wide CO₂ price and for increasing non-fossil electricity capacity via a Renewable Portfolio Standard. We find that compared with the no policy scenario in 2030, the average cost per unit of emissions reduced is lowest under a CO₂ pricing regime. A pure RPS costs more than 10 times the cost of a CO₂ pricing regime. Projected electricity demand in 2030 decreases by 8% under the CO₂ price, while introducing an RPS further suppresses electricity demand. Importantly, a reduction in the costs of wind and solar power induced by favorable policies may result in cost convergence across instruments, paving the way for more aggressive decarbonization policies in the future

Incentivizing firm compliance with China’s national emissions trading system

When it launches in 2017, China's CO2emissions trading system (ETS) will cover the largest CO2emissions volume of any system to date and be among the very first to launch in a developing country. We evaluate the potential of an ETS to alter the emitting behavior of covered firms and to support the achievement of national CO2intensity reduction targets at least cost. Specifically, we focus on two questions: (1) What factors have limited firms' past compliance with environmental policy in China, and (2) what can be done to strengthen compliance with China's national ETS? We argue that altering firm behavior will require a simultaneous effort to strengthen firms' compliance incentives through changes to national institutions-in particular, a strong legal foundation for the system, a nationally unified set of measurement, reporting, and verification requirements subject to independent scrutiny, and ongoing broader economic reforms to support system operation. It will also require signaling a sustained commitment to experimentation, evaluation, and modification of the system based on performance, given that system effectiveness will depend on expectations about its longevity and credibility, but will inevitably require adjustments. We illustrate the importance of these recommendations for firm compliance behavior by drawing on the experience of the Beijing pilot ETS (2013-2015). Given vast heterogeneity across provinces, special attention should be given to strengthening institutional foundations where they are least developed alongside the construction of a national ETS

Herding Cats: Firm Non-Compliance in China’s Industrial Energy Efficiency Program

We study firm responses to a large-scale energy efficiency program in China, focusing on the quality of reporting and compliance outcomes. Using statistical methods to detect data manipulation in compliance reports, we find evidence that firms deliberately exaggerated performance during the first phase of the program (2006-2010), suggesting the high compliance rate was overstated. In its second phase (2011-2015), the number of firms in the program expanded by an order of magnitude, and the compliance rate decreased. We develop a simple model to show how the observed increase in non-compliance is consistent with reduced misreporting. Statistical tests find no evidence of manipulation in the second phase. Larger firms, especially those not controlled by the state, and firms in cities with relatively low growth were more likely to report non-compliance, which suggests a role for state control and local protectionism in shaping compliance decisions. Based on our findings, we offer several lessons for future program design.U.S. Department of Energy (Award DE-EI0001908