国民经济研究局

RATE-BASED EMISSIONS TRADING WITH OVERLAPPING POLICIES:INSIGHTS FROM THEORY AND AN APPLICATION TO CHINA Carolyn FischerChenfei QuLawrence H. Goulder Working Paper 33197http://www.nber.org/papers/w33197 NATIONAL BUREAU OF ECONOMIC RESEARCH1050 Massachusetts AvenueCambridge, MA 02138November 2024 The authors are grateful for helpful comments from Shanjun Li, Sebastian Rausch, Giovanni Ruta,Oliver Schenker, Chunhua Wang, Junjie Wu, Da Zhang, and Xiliang Zhang, as well as participantsin the AERE 2024 Annual Conference, CAERE 2024 Annual Conference, Workshop onEnvironmentaland Energy Economics at Shanghai Jiao Tong University, EUI Workshop onEmissions Trading, EAEREAnnual Conference 2024, EfD Annual Meetings 2024, and seminarparticipants at Harvard KennedySchool, University of Pennsylvania, and the OECD. The findings,interpretations, and conclusionsexpressed in this paper are entirely those of the authors. They donot necessarily represent the viewsof the World Bank and its affiliated organizations, or those ofthe Executive Directors of the WorldBank or the governments they represent. The views expressedherein are those of the authors and donot necessarily reflect the views of the National Bureau ofEconomic Research. NBER working papers are circulated for discussion and comment purposes. They have not beenpeer-reviewed or been subject to the review by the NBER Board of Directors that accompaniesofficialNBER publications. © 2024 by Carolyn Fischer, Chenfei Qu, and Lawrence H. Goulder. All rights reserved. Shortsectionsof text, not to exceed two paragraphs, may be quoted without explicit permission providedthat fullcredit, including © notice, is given to the source. Rate-Based Emissions Trading with Overlapping Policies: Insights from Theory and an Applicationto ChinaCarolyn Fischer, Chenfei Qu, and Lawrence H. GoulderNBER Working Paper No. 33197November 2024JEL No. O38, Q48, Q52, Q58 ABSTRACT Jurisdictions employing emissions trading systems (ETSs) to control emissions often utilize otherenvironmental or energy policies as well, including policies to support renewable energy andreduceenergy consumption. Interactions with these other policies lead to different outcomes fromwhat mightbe predicted by examining the policies separately. The prior literature consideringpolicy interactionshas focused mainly on the case where the ETS is cap and trade. This paperextends the literature byexamining the outcomes under a wide range of ETSs (including severalforms of tradable performancestandards) and overlapping policies (including various renewablesubsidies and electricity consumptiontaxes). An analytical model demonstrates that the impacts ofoverlapping policies on allowance prices,emissions, and electricity output depend critically on thenature of the ETS. A numerical general equilibriummodel tailored to China’s economy explorestheimplications for the cost-effectiveness of emissions reductions.Results indicate thatoverlapping policies that reduce cost-effectiveness under cap andtrade can significantly enhancecost-effectiveness under tradable performance standards. The modelpredicts that under the currentand planned designs for China’s ETS, which sets differentiated tradableperformance standards foremitters, implementing renewable portfolio standards and accounting forindirect emissions fromelectricity consumption are both beneficial. Together they can reduce the costof achieving thenational emissions target by 20-30 percent over the interval 2020-2035. Transitioningto uniformbenchmarks for emitting power generators could save another 10-15 percent. The findingshighlightthe importance of coordinating the designs of emissions trading systems with the overlappingpolicies. Lawrence H. GoulderDepartment of EconomicsLandau Economics Building 328Stanford UniversityStanford, CA 94305and NBERgoulder@stanford.edu Carolyn FischerWorld Bank Group1818 H Street, NWWashington, DC 20433and Resources for the Future, and CESifocfischer2@worldbank.org Chenfei QuTsinghua Universityqcf20@mails.tsinghua.edu.cn An onlineappendix is available at http://www.nber.org/data-appendix/w33197 I.Introduction Economists for years haveurgedpolicymakers to adopt market-based mechanisms forcontrolling emissions of pollutants like greenhouse gases(GHGs). More and more jurisdictionshave been introducingcarbonpricing, either through carbon taxes orviatradable allowancesystems (WorldBank,2022).Importantly,these jurisdictions typically have other energy orenvironmental policies in place, includingsupport forrenewable energytopromote the transitionto a low-carbon economy. This overlap of policies leads to economic interactions that give rise tooutcomes quite different from what one might predict after examining the individual policiesseparately. The overlaps affect outcomes for emissions, the prices of emission allowances, andlevels of production. A substantial literature has evolved to look at interactions between overlapping market-based policies.