How will the emissions trading scheme save cost for achieving China's 2020 carbon intensity reduction target?

Chinese government has committed to reduce its carbon intensity by 40-45% over the period 2005-2020 at the 2009 Copenhagen Summit. To achieve the target in a cost-effective way, China is signaling strong intentions to establish emissions trading scheme, and presently seven pilots have been established. This paper focuses on the cost-saving effects of carbon emissions trading in China for the 2020 target. First, an interprovincial emissions trading model is constructed. Then, three kinds of policy scenarios, including no carbon emissions trading among provinces (NETS), the carbon emissions trading only covering the pilots (PETS), and the unified carbon emissions trading market (CETS), have been designed. The results show that China needs to reduce its emissions by 819 MtCO₂ for achieving the 42.5% reduction in carbon intensity over the period 2005-2020. The PETS and the CETS, which may result in a carbon price of 99yuan/tCO₂ and 53yuan/tCO₂, could reduce the total abatement costs by 4.50% and 23.67%, respectively. This paper also finds that the carbon emissions trading could yield different impacts on different provinces, and the cost-saving effects of the eastern and western provinces are more pronounced than the central provinces. Necessary sensitivity analysis is also provided at the end of the research. These findings may be useful for promoting the development of carbon emissions trading in China.