Research on the Economic and Emission Impacts of the Expansion Strategy of the National Carbon Market

To mitigate climate change, China has proposed ambitious emissions abatement targets and plans to realize the targets through carbon emissions trading schemes. The national ETS, initially covered the power sector, operates in 2021 and then gradually covers other sectors. We construct a dynamic CGE model with the ETS module and evaluate impacts on different expansion strategies. Results show that the abatement costs and macroeconomic losses will be minimal, if the market covers the non-ferrous metals, non-metal mineral sectors, ferrous metals, chemical products, paper, petroleum processing, and transportation sectors in 2022. Under this scenario, the carbon price is 110 ￥/tCO₂, and the cumulative reducing emissions are 5.11%, and the cumulative GDP loss is 0.18% by 2030. If the national carbon market has not covered all eight sectors within the 14th Five-Year Plan, it will cause an increase by 32.77% of GDP loss per unit abatement compared will accelerated expansion scenario. Among the sectors included in the national carbon market, the largest abatement and profit loss emerge in the power sector, while that happens in the coal production and processing sector among the sectors not covered. Moreover, several alternatives of model parameters and carbon market design are discussed and policy recommendations based on these considerations are provided.