Socioeconomic impacts of household participation in emission trading scheme: A Computable General Equilibrium-based case study

Abstract Policy on household carbon reduction behavior has an important role on climate actions but is neglected in practice. Household energy consumption is uncontrolled under the current policy both in the developed and developing countries, which is inefficient towards an ambitious climate target. Household participation in emission trading scheme (ETS) is a valuable solution. Enhancing understanding of socioeconomic impacts of the policy will facilitate the deployment and development on ground in the countries with ETS. The dynamic computable general equilibrium model with extended linear expenditure system and emission trading scheme, is used to analyze the impacts. With the case study of China, we find that compared with ETS without household participation, household participation can reduce 45.5% and 28.1% of carbon emissions of rural and urban households, reduce 13.60–14.01% of carbon mitigation cost, reduce household welfare loss and influence social equity in 2050. The allocation mechanism of carbon allowances has significant impact on household welfare and social equity. The methodology can be applied in other regions to explore the magnitude of impacts. This study evidences the benefits of household participation in ETS, and provides policy-makers some insights to design a careful and reasonable household carbon reduction policy around the world.