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Absolute vs. Intensity-based Caps for Carbon Emissions Target Setting

A Risk Linking the EU ETS to the Chinese National ETS?

Yingying Zeng, Stefan E. Weishaar, Oscar Couwenberg


Linking the European Union Emissions Trading System (EU ETS) to the Chinese national ETS promises considerable economic and political benefits. However, different policy choices regarding cap setting between the systems are likely to impede a potential linking. A striking distinction is that the EU ETS relies upon an absolute cap, while the Chinese national ETS appears to apply an ‘intensity-based cap’ during the early stages. The current linking literature focuses on mapping legal barriers in general and has not yet focused on EU and China, let alone the intricacies of policy design. This article seeks to fill this gap by concentrating on (static and dynamic) efficiency and environmental effectiveness implications of linking and cap design. From the analysis of the cap we derive policy implications for a hypothetical ETS linking between the EU and China. In response, comprehensive and predictable regulation is needed to ensure the attainment of ETS targets and thus facilitate better regulation.

Yingying Zeng (PhD researcher), Dr. Stefan E. Weishaar (Associate
Professor of Law and Economics),
Department of Law and Economics, Faculty of Law, and
Prof. Dr. Oscar Couwenberg (Professor of Governance and Geography), Faculty of Spatial Sciences, University of Groningen, the Netherlands. The authors would like to gratefully acknowledge the grant from China Scholarship Council (Project No. 201406010337). The authors would like to thank Prof. Dr. Hans H.B. Vedder, Suryapratim Roy and anonymous reviewer for their constructive comments and suggestions. The authors would also like to thank the critiques, comments and advice from participants of FSR Climate 2015 Annual Conference at the European University Institute (EUI).

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