The Potential Gains from Carbon Emissions Trading in China's Industrial Sectors

The command and control mechanism and the market trading mechanism have been adopted by Chinese government to reduce the industrial carbon emissions. Concerns have arisen over which policy is more effective and what are the potential gains from carbon emissions trading for industrial sectors. A Data Envelopment Analysis based linear programming technology is used to compare the industrial potential gains including both the economic potential gains and the environmental potential gains from the command and control and carbon emissions trading mechanisms. An empirical study containing the data set of 38 sub-industries in China from 2006-2014 is conducted. The empirical results show that the carbon emissions trading mechanism can produce more potential gains compared with the command and control mechanism, with an average of 69.6 and 92.0% economic potential gains and 49.1 and 21.0% environmental potential gains in terms of the overall level and industrial level, respectively. Additionally, the environmental potential gains of each sub-industry can provide theoretical support for the emission quotas allocation. Finally, several policy implications based on the empirical results are proposed.