Building a low carbon China through Coasean bargaining

Abstract

This study explores how an institutional innovation in the 20th Century – Coasean bargaining - could contribute to build a low carbon China in the 21st Century. China has surpassed all nations and become the world's largest emitter of CO2 since 2007. A time-series analysis has revealed that crude oil and coal consumption, inter alia, are the primary factors contributing to the variations in CO2 emissions in China. To honour China's commitments in the Paris Agreement 2015, this paper, with reference to the empirical results, estimates the impacts on various sources of energy consumption before 2030. Developed upon the Coasean bargaining framework (1960), the cap-and-trade (CAT) markets have contributed to reduce the pollutants and greenhouse gas emissions in the US and EU. This paper will illustrate how the CAT market can be complementary to administrative measures for CO2 reduction in China. It will also discuss the institutional settings and constraints of the 7 pilot CAT markets in China, and also the national one to be rolled out in 2017.