The Impact of the Co-Existence of Carbon Emission Trading System And White Certificate

The rapid expansion of the carbon emission trading system (ETS) has raised debates on the necessity of existing policy instruments in reducing carbon emissions. This paper investigates the impacts of environmental regulations where the ETS and White Certificates policies may co-exist. We build a theoretical framework to investigate the interactions among industry sectors under different ETS and White Certificates policies. Based on the iron and steel industry and the cement industry sectors in China, our numerical simulation shows that when carbon prices are sufficiently high (above 50 yuan, or $7.18 per ton), both sectors will choose to participate in the ETS. The White Certificate market becomes inactive under a high carbon price. When the carbon price is distorted and the marginal emission damage is below 400 yuan (or $54.45) per ton, the ETS-only scenario leads to the highest social surplus. However, when the marginal emission damage exceeds 400 yuan (or $54.45) per ton, the White Certificate market may lead to a higher social surplus compared to the ETS-only scenario since the White Certificate market encourage more valuable emission reductions. Our analyses provide policy support to improve current ETS trading and contribute to the designing of an integrated emission reduction mechanism