Allocation of carbon dioxide emission quotas based on the energy-economy-environment perspective: Evidence from Guangdong Province

Abstract As one of the most important environmental control mechanisms in China, the Emissions Trading Scheme (ETS) is set to alleviate the contradictions among the energy-economy-environment (3E) system and achieve the sustainable development goals (SDGs), while any such scheme requires an initial allocation of carbon dioxide emission quotas. However, the current allocation method dominated by the grandfathering approach does not reflect this original intention well. Integrating the 3E goals with the quota allocation issue, this paper established a dual-objective programming model that considered both the economic and energy goals, while the environmental goal was reflected in constraints. Evidence from Guangdong Province revealed that the 3E approach was superior to the grandfathering approach in some respects. When the weight given to the energy goal was within a certain interval, the 3E approach could simultaneously optimize the total abatement cost and emission efficiency, which not only reflected the “polluter pays” principle but also avoided the possibility of windfall profits from the redundant quota. In other cases, the 3E approach could unilaterally improve the energy or economic goal to reflect decision preferences. Finally, the findings of this paper have important implications for policy makers seeking to develop new regulations for the national ETS.