Hybrid seminar: Rate-Based Emissions Trading with Overlapping Policies : Insights from Theory and an Application to China

Jurisdictions using emissions trading often implement overlapping policies, such as renewable subsidies and energy taxes, which alter expected outcomes. Prior research focuses on cap-and-trade, but many jurisdictions now adopt rate-based emissions trading (tradable performance standards), where both emissions and prices adjust. This paper analyzes various trading systems and policy overlaps using an electricity sector model and a general equilibrium model for China. Renewable subsidies lower emissions prices but have mixed effects on emissions under performance standards. Electricity taxes reduce emissions and output across all systems. While overlaps raise efficiency costs in cap-and-trade, they can improve cost-effectiveness under performance standards, potentially cutting China’s abatement costs by 30%.