Two-step allocation of CO2 emission quotas in China based on multi-principles: Going regional to provincial

Abstract In order to ensure the implementation of the emission trading scheme (ETS), the allocation of CO2 emission quotas in China's provinces is of significant importance. Unlike previous studies that allocated CO2 emission quotas directly to Chinese provinces, we propose a two-step allocation scheme of “country to region” and “region to province” to formulate the provincial CO2 emission quotas allocation. In the first step, considering the regional coordination development, the Shapley value method is used to assign the CO2 emission quotas to China’s eastern, central, and western regions by simulating the regional collaborative abatement. In the second step, we use the entropy method to obtain the initial CO2 emission quotas for each province combining the principles of fairness, efficiency, feasibility, and sustainability. Then, a zero-sum gains data envelopment analysis (ZSG-DEA) model is applied to evaluate initial allocation efficiency and reallocate the CO2 emission quotas to realize efficiency optimization within the region. The results show that the eastern region obtains the largest CO2 emission quotas, followed by central and western regions. The energy-abundant and economic-prosperous provinces, such as Shandong, Hebei, Inner Mongolia, and Xinjiang, face great pressures on CO2 reduction. Compared with existing literature, the proposed scheme’s regional allocation results are more balanced, which will narrow the gaps of regional economic development. Since the emission reduction pressure varies in provinces, developing differentiated policies is critical to realizing China’s reduction targets. By considering regional fairness, this paper provides a reference for allocating CO2 emission quota among provinces to improve adaptability to the current conditions of China.