The impact of multiple emission reduction policies: Evidence from the coexistence of carbon emission trading system and white certificate

Abstract

The rapid expansion of the carbon emission trading system (ETS) has sparked discussion over the necessity of existing policy instruments in reducing carbon emissions. This paper investigates the impacts of environmental regulations where the ETS and white certificate (WhC) policies may coexist. We develop a theoretical framework for investigating the interactions among industry sectors under various ETS and WhC policies, including strategic options where only one policy is effective. We show that the combination of ETS and WhC results in increased total energy savings but decreased production compared to when only ETS is available. Using the case study of two energy-intensive sectors in China, our numerical simulations reveal that when carbon prices are sufficiently high (above 50 yuan, or $7.18 per ton), both sectors will opt to participate in the ETS, making the WhC market dormant. However, when the marginal emission damage exceeds 400 yuan (or $ 54.45) per ton, the WhC market may lead to a higher social surplus than the ETS-only scenario by encouraging more valuable emission reductions.