Dynamic Rollout Plan of China National Carbon Emissions Trading Scheme: A CGE-Based Analysis

Abstract

China has announced ambitious emissions reduction targets to peak CO2 emissions by 2030 and achieve carbon neutrality before 2060. In pursuit of these objectives, the country intends to employ carbon emissions trading schemes as a key policy tool. The national Emissions Trading System (ETS) was launched in the power sector in 2021, with plans to progressively encompass additional sectors. Notably, there are lack of studies on the dynamic expansion during operation, and the entire process modeling of the carbon allowance allocation system. This paper addresses this gap by presenting a systematic modeling of the carbon allowance allocation policy. We introduce a dynamic Computable General Equilibrium (CGE) model that captures the entirety of the ETS process, enabling us to assess the implications of various allocation mechanisms on socio-economic outcomes and carbon emissions, with a particular focus on dynamic rollout strategies. Our findings indicate that a phased expansion strategy minimizes economic disruptions, with early expansions yielding more significant reductions in economic losses. Although a policy of free allowance allocation can diminish carbon prices and abatement costs for participating sectors, it may incur additional economic deficits. Furthermore, technological advancements and heightened electrification are expected to mitigate macroeconomic losses stemming from the carbon market. We also explore several alternative model parameters and designs for the carbon market. Our findings can provide policy recommendations in gradual expansion, auction allocation, market stability mechanism when further improving the national carbon market.

Received:  20 December 2025 | Revised: 15 May 2025 | Accepted: 28 May 2025

Conflicts of Interest

The authors declare that they have no conflicts of interest to this work.

Data Availability Statement

The data that support this work are available upon reasonable request to the corresponding author.

Author Contribution Statement

Chang-Jing Ji: Conceptualization, Methodology, Software, Formal analysis, Writing – original draft, Funding acquisition. Xiaodan Wang: Formal analysis, Writing – review & editing, Supervision, Project administration, Funding acquisition.