Applied Energy 260 (2020) 114290

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Applied Energy
journal homepage: www.elsevier.com/locate/apenergy

The impact of carbon trading on economic output and carbon emissions T

reduction in China’s industrial sectors
Yue-Jun Zhanga,b, , Ting Lianga,b, Yan-Lin Jina,b, Bo Shenc
⁎

a
Business School, Hunan University, Changsha 410082, China
b
Center for Resource and Environmental Management, Hunan University, Changsha 410082, China
c
Energy Analysis and Environmental Impacts Division, Lawrence Berkeley National Laboratory, Berkeley, CA 94720, United States

HIGHLIGHTS

• The potential gains and carbon emissions reduction of carbon trading are detected.
• Three scenarios of carbon trading schemes are considered and compared.
• Sectoral trading may create potential gains of 268.02 trillion yuan in 2006–2015.
• Carbon emissions may decrease by 17.17 billion tonnes under sectoral trading scheme.
• Sectoral trading decreases industrial carbon intensity by 19.80% during 2015–2020.

ARTICLE INFO ABSTRACT

Keywords: Carbon trading is an important market tool in driving growth and carbon dioxide emissions reduction in in-
Carbon trading dustrial sectors in China. This paper attempts to assess the impacts of carbon trading on economic output and
DEA based optimization model carbon dioxide emissions reduction in China’s industrial sectors by employing the data envelopment analysis
Economic output (DEA) based optimization models, based on three carbon trading schemes, i.e., no trading (NT), sectoral trading
Carbon dioxide emissions reduction
(ST), and sectoral-and-temporal trading (STT) during 2006–2015. Comparing with the no-trading scheme, the
Carbon intensity
China
results indicate that, (1) the ST and STT schemes may create potential gains of 268.02 and 612.26 trillion yuan in
the whole industrial during the study period, i.e., the industrial value-added would be increased by 55.17% and
73.76%, respectively; (2) the ST and STT schemes could reduce 17.17 and 19.22 billion tonnes of carbon dioxide
emissions, respectively, accounting for 58.30% and 65.25% of emissions reduction in the whole industry; and (3)
if carbon trading were adopted in China since 2006, its carbon intensity of industrial sectors would decrease by
34.89%, 47.44% and 19.80% under the ST scheme, and 58.93%, 31.50% and 10.25% under the STT scheme
during the11th, 12th and 13th Five-Year Plan periods, respectively.

1. Introduction reduce CO2 emissions and address climate change [2,3].

Climate change is a major challenge facing the humankind in regard
to their survival and development in the 21st century, and it has be-
come the global consensus to address climate change proactively and
aggressively promote green and low-carbon development. In fact, China
has become the world’s largest carbon emitter since 2006, the CO2
emissions from China reached 9.43 billion metric tonnes in 2018, ac-
counting for 27.8% of the world’s total share [1]. Against this backdrop,
China is undergoing structural transformation with economic growth
rate slowing down in recent years, yet it still faces enormous pressure to
In recent years, Chinese government has shown the world its strong
determination in conserving energy and mitigating emissions by setting
forth a series of regulations and polices [4–6]. In 2011, to promote the
use of market mechanisms at a lower cost to achieve the 2020 target of
controlling greenhouse gas emissions, and accelerate the transforma-
tion of economic development and industrial structural change, the
National Development and Reform Commission of China approved
Shanghai, Beijing, Guangdong, Shenzhen, Tianjin, Hubei and
Chongqing to carry out carbon trading pilots, and launched carbon
dioxide emissions allowances trading in 2013. These pilots paved the

⁎
Corresponding author at: Business School, Hunan University, Changsha 410082, China.
E-mail address: zyjmis@126.com (Y.-J. Zhang).

https://doi.org/10.1016/j.apenergy.2019.114290
Received 23 October 2018; Received in revised form 27 November 2019; Accepted 28 November 2019
Available online 09 December 2019
0306-2619/ © 2019 Elsevier Ltd. All rights reserved.
Y.-J. Zhang, et al.
way for the China’s national carbon emissions trading (CET) scheme,1
which was announced in the “China-US Joint Announcement on Cli-
mate Change” —a US-China joint declaration on climate change issued
by President Xi Jinping and former U.S. President Barack and Obama in
September 2015. The national scheme was officially kicked off in De-
cember 2017 with electricity sector being the first target and other
sectors to be covered in the future. In March 2016, Chinese government
issued the 13th Five-Year Plan to clarify the new development concepts,
i.e., innovation, coordinated development, green, openness, and
sharing, in an attempt to make low-carbon development a major eco-
nomic and social development strategy and an important driver for
ecological civilization construction, so as to address global climate
change.2
Similar to the case in some other countries, industrial sectors are the
crucial participants of carbon trading market in various versions of
China’s carbon trading design. In fact, industrial sectors contribute
about 40% of China’s total GDP, but also account for more than 70% of
energy consumption. According to Li et al. [7], about 66.7% of Chinese
regional industrial systems are inefficient. The resource and environ-
ment constraints combined with inefficient industrial systems make
carbon trading as an effective solution for China’s industrial sectors to
curb energy consumption and reduce their emissions. Therefore, as a
key energy saving and emission reduction player in China, industrial
sector has to be the main stake holder in China’s carbon trading market
[3].
Since the inception of China’s carbon trading program, Chinese
government has attached great importance to the operation of carbon
trading pilots [8–10] and the construction of national unified carbon
market. Meanwhile, some key issues such as internal mechanisms and
external impact of carbon trading have also attracted great attention
ofresearchers [11–13]. However, relevant literature is still relatively
sparse on the quantitative assessment of the impact of carbon trading
on economic output and emissions reduction from the whole industrial
and its sub-sectoral perspectives.
Since the data envelopment analysis (DEA) approach has been
widely used for evaluating energy efficiency and emissions reduction
potential, this paper attempts to develop the DEA based optimization
model under three separate schemes: no trading (NT), sectoral trading
(ST), and sectoral-and-temporal trading (STT) to quantify the impact of
carbon trading on the economic output and carbon dioxide emissions
reduction of the whole industry and 35 industrial sub-sectors.
Specifically, at first, under the assumption of variable returns to scale
(VRS) [14–16] and the weak disposability of emissions [17], we con-
sider the absence of carbon trading in the industrial sectors and assess
the maximum economic output and carbon emissions reduction that the
industry sectors can achieve under the NT scheme. Then, considering
the ST scheme that sectoral trading among the 35 industrial sub-sectors
and the carbon allowances might achieve the redistribution under the
ST scheme. Furthermore, the STT scheme that 35 industrial sub-sectors
can not only trade, but also bank and borrow carbon allowances in
order to be used at different time periods. Accordingly, we can assess
the impact of ST scheme on the whole industry and 35 industrial sub-
sectors by comparing NT and ST. Similarly, we can analyse the influ-
ence of STT scheme by comparing the NT and STT, as well as assess the
effect of different trading mechanisms by comparing ST and STT.
The main contribution of this paper is as follows: first, we set up
three carbon trading schemes: no-trading (NT), sectoral trading (ST)
and sectoral-and-temporal trading (STT)and take NT as the baseline;
then we assess the impact of two other schemes, i.e., ST and STT on the
economic output and carbon dioxide emissions reduction of the in-
dustrial sector. As a result, we not only assess the impact of carbon
1
http://www.ndrc.gov.cn/zcfb/zcfbtz/201201/t20120113_456506.html.
2
http://news.xinhuanet.com/politics/2016lh/2016–03/17/c_1118366322.
htm.
2
Applied Energy 260 (2020) 114290
trading as a market tool, but also the impact of different carbon trading
schemes, to provide a multi-faceted reference for the carbon market
construction in China. Second, besides assessing the impact of carbon
trading on the whole industry, we further divide the whole industry
into 35 sub-sectors to discuss them from a sectoral perspective, which is
conducive for these sectors to define their accurate roles under the si-
tuation of carbon trading. Finally, we conducted our assessment by
using historical data from 2006 to 2015 to assess the potential gains and
contribution to emissions reduction caused by carbon trading program.
We also estimated the potential impact of carbon trading on industrial
sectors by 2020 and explore whether or not the carbon trading scheme
could realize the dual objectives of increasing economic output and
reducing carbon intensity in China.
The rest of this paper is organized as follows: Section 2 reviews the
relevant literature, Section 3 describes the data and research methods,
Section 4 analyses the empirical results, and Section 5 concludes with
several key policy recommendations.
2. Literature review
There are several previous attempts to assess the influence of carbon
emissions trading mechanisms, and our literature review mainly ex-
amines the related literature from two aspects: the research focused
areas and methods.
On the research focus, most existing studies discuss the impact of
carbon emissions trading from different perspectives, i.e., at the na-
tional level, regional level, and industrial sector level. Some typical
studies are summarised in Table 1.
From reviewing the literature, we found that: (1) the first group of
studies estimate the impact of carbon emissions trading at the national
level, and most of them focusing on the EU emissions trading system
(EU ETS), which underline the importance of emissions trading and
propose some policy implications for governments. (2) The second
group of studies mainly analyse the impact of carbon emissions trading
at the sub-national level, especially for such pilot schemes as those in
Beijing, Shanghai, Tianjin, Hubei, Guangdong, Shenzhen, and
Chongqing. They assess the economic performance of carbon emissions
trading and basically conclude that the ETS may significantly reduce
the mitigation cost for the whole economy. (3) As for the third group,
the related studies focus on the impact of carbon emissions trading
scheme at the sector level, especially for CO2-intensive industries, e.g.,
coal-fired power generation, iron and steel, and so on. Industrial sectors
with high emissions are the key participants in carbon trading market,
but most related studies often devote their attention to individual sub-
sectors rather than several sectors, so it is hard to find the industrial
heterogeneity. Thus, it is necessary to explore all industrial sectors in
both aggregate and disaggregate perspectives under different carbon
emissions trading schemes.
On the research methods, we can find an abundance of methods
used to study carbon emissions trading market from Table 1. Com-
paring these methods, it is evident that the DEA based optimization
model contains some advantages over others for the study in this paper.
For one thing, when calculating the economic benefits of carbon
trading, it is not necessary to obtain the actual abatement costs of in-
dustrial sectors, which are difficult to be estimated accurately in carbon
market, and official data is lacking. For another, when calculating the
emissions reduction potential of carbon trading, there is no need to set
the initial emissions reduction targets for industrial sectors. Since we
use the historic CO2 emissions data and consider the no-trading scheme
as the baseline in this paper, which is a post hoc analysis, it can avoid
the computational errors caused by different allocation methods of
emissions reduction targets.
In summary, existing relevant literature provides important refer-
ences for this paper. Specifically, considering the special advantages of
the method used by Wang et al. [34], we employed the DEA-based
optimization model to estimate the impact of carbon emissions trading
 Y.-J. Zhang, et al.

Table 1
Typical literature related to the impact of carbon emissions trading.
Typical literature Perspective Subject Topic Method Main results

Zhang et al. [18] National United States, Europe, Australia, Emissions permit allocation and CGE model The integration of ETS would optimize the allocation of emissions permit and yield
Japan, South Korea and China economic welfare economic welfare gains for permits importing countries, and countries with higher
abatement cost would reduce the national GDP loss.
Gavard et al. [19] National United States, European Union and Sectoral trading and carbon price Emissions Prediction and Policy Carbon prices in developing and developed regions equalize when trade is
China Analysis (EPPA) model unrestricted.
Weng and Xu [20] National China Policy and suggestion Overview Although there is considerable potential for developing this market, there are
significant gaps in terms of the efficiency of transactions, market supervision, the
development of relevant legislation, and talent requirements. More attention should
be focused on the issue of uneven development within the current carbon trading
market.
Zhou et al. [21] National China Carbon emissions reduction and Nonlinear programming model China’s total emission abatement cost could decrease by over 40% through
abatement cost implementing such an interprovincial emission reduction quota trading scheme.
Liu et al. [22] National China Carbon market maturity Entropy-based TOPSIS model The overall maturity of China’s pilot carbon markets is relatively low, and there are
obvious differences in maturities among China’s seven pilot carbon markets.
Lin and Jia [23] National China ETS price and energy consumption CGE model GDP will reduce more with increasing ETS price level.
Liu et al. [24] Regional Hubei pilot Carbon emissions reduction and Term CO2 model Hubei Pilot has noticeable emission reduction effect, while its negative influence is
economic benefits relatively limited.
Cheng et al. [25] Regional Guangdong pilot Air pollutant emissions and CGE model Carbon emission trading scheme has significant co-benefits of reducing SO2 and NOx
economic costs emissions, and could reduce the economic costs of achieving energy saving and CO2
emission target.

3
Wang et al. [26] Regional Guangdong pilot Carbon price and economic impacts Two-region dynamic CGE model ETS could significantly reduce the mitigation cost for the whole economy. The GDP
of Guangdong province would recover by 2.6 billion USD.
Cong and Lo [27] Regional Shenzhen pilot Allowance price GARCH model The rate of return was negatively associated with expected risk represented by the
conditional variance, and this stands at odds with the usual expectation in the
financial market. In addition, there were significant fluctuations and excessively high
kurtosis in trading volume.
Wu et al. [28] Regional Shanghai pilot Carbon emissions reduction and Overview Shanghai ETS faces uncertainties will directly influence the carbon emission
abatement costs reduction ratio, abatement costs and burden sharing among producers, consumers
and the government.
Fan and Todorova [29] Regional Beijing, Guangdong, Hubei, and Carbon price and financial risks Arbitrage pricing theory For markets in Beijing, Guangdong, Hubei, and Shenzhen in the 2014–2016 period,
Shenzhen pilots the carbon prices in Hubei are weakly linked to international natural gas prices, but
not the international crude, but none of the other markets have a significant
relationship. Moreover, energy, utilities, industrial, and materials sector indices are
positively related to the allowance prices in Hubei and Shenzhen.
Huang et al. [30] Industry Coal-fired power sector Carbon price and abatement Benefit cost analysis Shenzhen ETS constitutes a main driver for the short-term technology investment of
technology investment the industry, but the long-term stimulation effect appears quite limited, except for
the integrated gasification comed cycle technology under high carbon price scenario.
Zhu et al. [31] Industry Electric power system Energy and electricity supply, and Two-stage stochastic Carbon emission trading is effective for CO2 permit reallocation, and different
reduction efficiency programming (TSP) model policies for CO2 management are associated with different levels of CO2 management
cost and CO2 mitigation failure risk.
Cong and Wei [32] Industry Power sector Environmental cost and technology Agent-based model The carbon emission trading can internalize the environmental cost and significantly
increasing the proportion of environmentally friendly technologies.
Zhang et al. [33] Industry CET-covered industries and Technology innovation DID and PSM-DID models The effect of China's CET on the technology innovation of related enterprises is
enterprises performance generally not significant during 2009–2017, but this effect presents evident
industrial heterogeneity.
Applied Energy 260 (2020) 114290
Y.-J. Zhang, et al. Applied Energy 260 (2020) 114290

schemes on economic output and carbon dioxide emissions reduction. Table 2

In addition, previous studies attempt to identify the potential gains Summary descriptive statistics of the variables.
or the contribution of carbon emissions trading from different per- Variable Obs. Mean Std. Dev. Min Max
spectives by applying various methods; however, they seldom focus on
all the industrial sectors. In fact, industrial sectors play a critical role in Panel A: 2006–2015
350 29.9360 76.6190 0.3781 474.8074
the sustainable development of China, and thus greater attention should E
L 350 2.5752 1.9597 0.1861 9.0926
be given to industry in the construction of any carbon emissions trading K 350 1337.2890 1410.5890 81.9288 8495.3030
schemes. It is, therefore, necessary to fill this gap. To this end, we in- G 350 580.3141 472.1634 54.5775 2021.5830
tend to explore the changes in the economic output and carbon dioxide C 350 84.1662 227.3099 0.8533 1451.9110
emissions of 35 industrial sectors under both ST and STT schemes, in Panel B: 2006–2010
order to understand the impact of carbon trading, which is important to E 175 28.1961 66.5482 0.6704 397.7743
ensure the effectiveness of China’s national carbon emissions trading L 175 2.4048 1.8039 0.1861 7.7275
K 175 1027.2940 1093.3610 81.9288 6006.3270
market.
G 175 430.6665 336.6467 54.5775 1394.4460
C 175 78.9711 196.2162 1.6637 1217.1210
3. Data and methods Panel C: 2011–2015
E 175 31.6759 85.6734 0.3781 474.8074
3.1. Data description L 175 2.7457 2.0955 0.1993 9.0926
K 175 1647.2850 1613.1400 119.6792 8495.3030
G 175 729.9617 537.3831 99.3616 2021.5830
This paper uses data from 2006 to 2015, covering the 11th and 12th C 175 89.3614 255.1107 0.8533 1451.9110
Five-Year Plan periods in China. Based on the classification of industrial
sectors in China Statistical Yearbook and data availability, we identified
35 sub-sectors as the research objects in this paper, as shown in As mentioned above, we take three schemes into consideration in
Appendix Table A. All the data used in this paper was extracted from this paper, i.e., no trading (NT), sectoral trading (ST), and sectoral-and-
China Statistical Yearbook, China Industrial Statistics Yearbook, China temporal trading (STT), as shown in Table 3.
Energy Statistical Yearbook, and statistics reports of National Bureau of In the first scheme, i.e., no trading (NT) scheme, there is no carbon
Statistics of China. allowance trading among the 35 industrial sub-sectors, thus the in-
Based on the production process of industrial sub-sectors, we used dustrial sectors seek to maximise their desirable output while keeping
energy, labour, and capital as input (denoted by E , L , and K , respec- the undesirable output constant. Therefore, under the assumption of
tively), industrial value-added of industrial sectors as desirable output variable returns to scale (VRS) [14–16], we use Model (2) to estimate
(denoted by G ), and total CO2 emissions as an undesirable output the largest economic output of industrial sector l in year t under the NT
(denoted by C ) [14,35–36]. Here, we only consider seven kinds of en- scheme, where t = 1, 2, 3, …, 10 represents the years from2006 to 2015,
ergy sources, i.e., coal, coke, gasoline, kerosene, diesel oil, fuel oil, and respectively.
natural gas. We use the number of employed persons in the industrial
sector to represent the labour, and the sum of liabilities and owner’s TRlNTt = max y lNTt
equity to represent the capital. 35
t t
s. t . j yj y lNTt
According to the IPCC Guidelines for National Greenhouse Gas j=1
Inventories [37], carbon dioxide emissions can be estimated by Eq. (1): 35
t t
j bj = blt
7 7 j=1
Cs 44 44
C= × Es × = Fs × Es × 35
Es 12 12 (1) t t
x ilt
s =1 s =1 j x ij
j =1
where s = 1, 2, 3, …, 7 represent coal, coke, gasoline, kerosene, diesel 35
t
oil, fuel oil, and natural gas, respectively; Cs means carbon dioxide j =1
j=1
emissions (in tons of carbon dioxide emission, tCO2) caused by con- t
sumption of energy source s , and Es denotes the total consumption (in j 0, j = 1, 2, 3, …, 35 (2)
tons of standard coal equivalent, tce) of energy source s . In addition, Fs where y lNTt denotes the maximization of the desirable output, and tj is
stands for the carbon intensity of energy source s , i.e., 0.7559, 0.8550, the intensity variable; yjt , btj , and x ijt represent the desirable output,
0.5538, 0.5714, 0.5921, 0.6185, and 0.4483 tC/tce for energy source
undesirable output, and input of industrial sub-sector j in year t , re-
s (s = 1, 2, 3, …, 7), respectively; 44/12 is the conversion factor from
spectively, where i = 1, 2, 3 correspond to energy, labour, and capital,
carbon to carbon dioxide emissions [37,38]. Table 2 presents the de-
respectively.
scriptive statistics for each variable.3
Furthermore, the sum of the largest economic output of the whole
industrial sector in year t and during 2006–2015 can be calculated by
3.2. Methods use of Eqs. (3) and (4), respectively.
35
To evaluate the impact of carbon emissions trading scheme on the TRNTt = TRlNTt
industrial sectors, we developed a DEA-based optimization model. The l=1 (3)
DEA model is first proposed by Charnes et al. [39] and has been ex-
10
tensively used in energy and environmental evaluation studies [40–41]. TTRNT = TRNTt
In the case of actual production activities, the reduction of undesirable t=1 (4)
output, such as CO2 emissions, is usually not unlimited, making it ap-
propriate to treat CO2 emissions as weakly disposable [17]. Similar The second scheme is the sectoral trading (ST) scheme, under which
applications of this assumption are found in much literature, such as various industrial facilities could trade and reallocate carbon allow-
Zhang et al. [42], Wang et al. [26] and Wang et al. [16]. ances in the same year, and the industrial sub-sector seeks to maximize
its desirable output when the undesirable output is variable. It should
be noted that since allowances could not be traded across years under
3
The original data sets of these variables are available upon request. the ST scheme, the total emissions per year must not be increased.

4
Y.-J. Zhang, et al. Applied Energy 260 (2020) 114290

Table 3 10 35

Carbon trading schemes description.

TTRSTT = max y lSTTt
t=1 l =1
35
Scheme Scheme description t t
s. t . jl yj y lSTTt
j=1
NT No emission trading among industrial sectors, i.e., the reference case.
35
ST The tradable permits can be exchanged only in the same year. t t t
STT Industrial sectors can trade the permits in the whole study period. Put it jl bj = bl
j=1
another way, this scheme allows each sector to deposit and borrow the
35
carbon emission permits during the trading process. t t
jl x ij xilt
j =1
35
Then, we apply Model (5) to get the sum of optimal economic output of t
jl =1
35 industrial sub-sectors in year t under the ST scheme: j=1
t
jl 0, j = 1, …, 35, l = 1, …, 35
35 10 35 10 35
TRSTt = max y lSTt bl
t
blt
l=1 t =1 l=1 t=1 l=1 (8)
35
t t
s. t . jl yj y lSTt
j=1 where y lSTTt denotes the maximisation of desirable output, and t
jl is the
t
35
t t t intensity variable; represents the undesirable output which can be
bl
jl bj = bl traded across sectors and over time; moreover, the last constraint in
j=1 10 35
t
35
t t
Model (8) indicates that the tradable undesirable output bl
jl x ij xilt t=1 l=1
j =1 10 35
35 cannot exceed the allowed total undesirable output blt .
t t=1 l=1
jl =1 Then, based on Eqs. (9) and (10), we can calculate the optimal
j=1
t economic output of industrial sector l in year t ,and the sum of optimal
0, j = 1, …, 35, l = 1, …, 35
jl
economic outputs of all the 35 industrial sub-sectors in year t , respec-
35 35
bl
t
blt tively.
l=1 l =1 (5)
TRlSTTt = y lSTTt (9)
where y lSTt denotes the maximisation of desirable output, and t
jl is the
t
intensity variable; in addition, bl represents the undesirable output 35
which can be traded across various sectors; moreover, the last con- TRSTTt = TRlSTTt
straint in Model (5) indicates that the tradable undesirable output l=1 (10)
35 35
t
bl cannot exceed the permissible total undesirable output blt ,
l=1 l=1
We define the optimal expected output difference between a certain
which is the observed total amount of emission subject to tradable carbon trading scheme (i.e., ST scheme and STT scheme) and no trading
permits in year t . This observed total amount of emission also equals to scheme (i.e., NT scheme) as the potential gains. Specifically,
the national total carbon emission in NT scheme, and we take this TRlSTt TRlNTt and TRlSTTt TRlNTt reflect the potential gains of in-
scheme as the baseline for estimating the potential gains from trading.4 dustrial sub-sector l caused by ST and STT schemes, respectively. It is
Similarly, the largest economic output of each industrial sub-sector worth noting that the baseline here is the desirable economic output
in year t and the sum of the largest economic outputs of 35 industrial under the NT scheme, rather than the real industrial value-added.5
sectors from 2006 to 2015 can be calculated by using Eqs. (6) and (7), TRlSTTt TRlSTt reflects the additional impact of different carbon trading
respectively: schemes in this paper. Similarly, we can also examine the impact of
carbon trading on the whole industrial sector in year t according to
TRlSTt = y lSTt (6) TRSTt TRNTt , TRSTTt TRNTt , and TRSTTt TRSTt .Finally, the impact of
carbon trading on the economic output of the whole industrial sector
10
during 2006–2015 can be assessed by TTRST TTRNT ,
TTRST = TRSTt TTRSTT TTRNT , and TTRSTT TTRST .
t=1 (7) Besides, based on Models (2), (5), and (8), we can measure the
potential carbon dioxide emissions reduction of each industrial sector
The third scheme refers to the sectoral-and-temporal trading (STT) and the whole of industry in each year, as well as during 2006–2015 by
scheme, where 35 industrial sub-sectors can trade and reallocate carbon t
35 35
t
10 35 10 35
t
blt bl , blt bl , and blt bl , respectively. Then, the
allowances not only in a given year but also across years. That is to say, l=1 l =1 t=1 l=1 t=1 l =1
these 35 industrial sub-sectors are allowed to bank and borrow allow- corresponding contribution of carbon trading schemes to emissions
35 35 35
ances during 2006–2015. Note that the total emissions of all sectors t t
reduction can be evaluated by (blt bl ) blt , blt bl blt , and
should not be increased during the study period. We can measure the l=1 l=1 l =1
largest economic output of the whole industrial sector during 10 35 10 35
t
10 35
blt bl blt , respectively.
2006–2015 under the STT scheme by using Model (8): t=1 l=1 t=1 l=1 t=1 l=1

5
The NT scheme is assumed to have no carbon trading during the research
period (2006–2015). In fact, China has started carbon emission trading pilot
since 2012. Therefore, the NT scheme is an assumed scenario rather than the
actual situation, and this paper did not use the actual industrial added value to
4
A similar application of this method can be seen in Wang et al. (2016). represent the desirable economic output of the NT scheme.

5
Y.-J. Zhang, et al. Applied Energy 260 (2020) 114290

Fig. 1. Impacts of carbon emissions trading on the whole industry.

Table 4
Potential gains of ST scheme for 35 industrial sectors during 2006–2015 (Trillion Yuan).
Sector 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total

S1 0.46 0.38 0.57 0.88 1.25 1.62 2.41 2.33 3.28 3.16 16.34
S2 0.00 0.02 0.10 0.27 0.45 0.53 0.55 0.51 0.67 0.59 3.68
S3 0.04 0.04 0.09 0.08 0.26 0.29 0.37 0.36 0.49 0.46 2.50
S4 0.02 0.03 0.03 0.03 0.06 0.06 0.14 0.12 0.24 0.24 0.97
S5 0.02 0.01 0.02 0.02 0.03 0.01 0.09 0.08 0.21 0.23 0.72
S6 0.19 0.16 0.22 0.27 0.43 0.53 0.80 0.82 1.75 1.77 6.96
S7 0.18 0.14 0.16 0.18 0.23 0.26 0.40 0.40 0.82 0.91 3.68
S8 0.23 0.19 0.22 0.23 0.29 0.35 0.46 0.48 0.81 0.86 4.12
S9 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
S10 0.72 0.57 0.59 0.60 0.72 0.74 1.06 0.95 1.61 1.53 9.08
S11 0.13 0.13 0.17 0.15 0.20 0.17 0.61 0.60 0.80 0.62 3.59
S12 0.06 0.06 0.06 0.06 0.08 0.07 0.33 0.31 0.43 0.33 1.77
S13 0.07 0.06 0.08 0.07 0.08 0.05 0.14 0.14 0.33 0.35 1.36
S14 0.00 0.00 0.02 0.02 0.05 0.07 0.04 0.07 0.16 0.07 0.49
S15 0.37 0.31 0.37 0.39 0.49 0.54 0.63 0.62 0.81 0.81 5.34
S16 0.01 0.01 0.02 0.03 0.04 0.02 0.01 0.06 0.40 0.25 0.84
S17 0.00 0.00 0.00 0.00 0.00 0.00 0.15 0.23 0.64 0.49 1.51
S18 0.38 0.35 0.48 0.55 0.72 0.92 1.00 1.03 1.19 1.07 7.70
S19 1.21 1.02 1.26 1.43 1.86 2.13 2.66 2.66 3.77 3.71 21.72
S20 0.38 0.31 0.32 0.38 0.47 0.56 0.72 0.76 1.26 1.41 6.56
S21 0.16 0.20 0.17 0.17 0.22 0.29 0.31 0.31 0.37 0.35 2.55
S22 0.12 0.12 0.14 0.14 0.17 0.20 0.25 0.24 0.41 0.42 2.19
S23 0.28 0.26 0.29 0.30 0.38 0.36 0.56 0.53 0.97 0.90 4.84
S24 0.76 0.59 0.75 0.86 1.10 1.25 1.75 1.78 3.00 3.05 14.88
S25 1.41 1.37 1.66 1.97 2.27 2.56 2.83 2.71 3.30 2.95 23.02
S26 0.48 0.49 0.61 0.71 0.96 1.12 1.34 1.36 1.79 1.70 10.56
S27 0.28 0.28 0.37 0.42 0.53 0.59 0.98 0.94 1.77 1.69 7.85
S28 0.65 0.67 0.88 1.02 1.29 1.29 1.53 1.52 2.44 2.47 13.74
S29 0.37 0.48 0.66 0.74 0.99 1.10 1.42 1.45 2.20 1.91 11.32
S30 0.99 1.32 1.58 1.94 2.53 2.82 3.16 3.22 4.08 4.24 25.89
S31 0.51 0.72 0.89 1.05 1.50 1.14 1.99 2.04 2.28 2.27 14.38
S32 0.22 0.47 0.63 0.97 1.06 0.00 0.36 0.47 0.86 0.83 5.87
S33 0.00 0.00 0.00 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.01
S34 0.03 0.04 0.04 0.06 0.07 0.09 0.00 0.00 0.00 0.00 0.32
S35 2.44 3.11 3.59 2.58 2.53 2.70 3.21 3.14 4.03 4.38 31.70
Total 13.15 13.91 17.04 18.56 23.29 24.43 32.23 32.25 47.16 46.02 268.02
Percent (%) 53.69 51.25 53.56 50.07 52.17 50.64 55.37 53.66 61.27 59.66 55.17

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Y.-J. Zhang, et al. Applied Energy 260 (2020) 114290

4. Empirical results and discussion
4.1. Impact on economic output
Based on the aforementioned models, we evaluate the impact of
carbon trading on the economic output in the whole industrial sector of
China (see Fig. 1) and each sub-sector (see Tables 4 and 5). The main
findings are summarised as follows:
First, both ST and STT schemes are beneficial to the economic
output of the whole industrial sector. As shown in Fig. 1, the additional
benefits of the whole industry under the ST and STT schemes are
268.02 trillion Yuan and 612.26 trillion Yuan during 2006 to 2015,
respectively, and the difference between the two schemes is 344.24
trillion Yuan. Moreover, the longer period of carbon trading may pro-
duce the greater potential gains. Taking the ST scheme as an example,
the potential gains would increase from 13.15 trillion Yuan in 2006 to
46.02 trillion Yuan in 2015.
In fact, the impact of carbon trading on the economy is always
controversial, and the research results vary from different carbon
trading schemes and economic conditions [43]. Some scholars believe
that carbon trading can effectively curb emissions, but it will increase
the costs and could limit the growth of carbon market participants.
Compared to an enterprise which is not covered by a trading scheme,
carbon trading participants will lose some market shares and their
economic output will be negatively affected to a certain extent [24,44].
However, most studies hold an opposite view, they concluded that
carbon trading can achieve the dual goals of developing economy and
controlling CO2 emissions, and they certainly support the establishment
of c carbon emissions trading market [26,34,45]. In this study, 35
industrial sub-sectors are participants in carbon trading market, with no
exceptions. If a sector’s emissions exceed the mandatory limits, it will
need to purchase a certain number of emissions allowances from other
sectors which have surplus quotas, leading to an increase in its pro-
duction costs. Therefore, to avoid this situation and prevent the addi-
tional production costs, industrial sectors will be committed to the use
of more advanced production technologies to maximise their economic
efficiency. At the same time, they will also control the emission of CO2
by reducing the consumption of fossil fuels, while increase the use of
efficient and clean energy, or increase the proportion of renewable
energy.
Second, according to the potential gains, the impact of ST scheme
on different industrial sectors is quite distinct, as shown in Table 4, and
the impact of STT scheme is shown in Table 5. On the one hand, eight
sectors, i.e., the mining and washing of coal (S1), manufacturing of raw
chemical materials and chemical products (S19), manufacturing of non-
metallic mineral products (S24), smelting and pressing of ferrous metals
(S25), manufacturing of general purpose machinery (S28), manu-
facturing of transport equipment (S30), manufacturing of electrical
machinery and equipment (S31) and production and distribution of
electrical power and heat Power (S35), are affected more obviously by
carbon trading, and their average potential gains all exceed 1.2 trillion
yuan during 2006–2015, which are consistent with Su and Ang [46].
These industrial sectors have more developed economy than others, and
their CO2 emissions account for more than 85% of the whole industry,
which indicates that they could control CO2 emissions through various
effective measures under the ST and STT schemes, and could generate
surplus carbon quotas and act as the important sellers in carbon trading
market. Thus, they could get extra economic benefits by selling quotas

Table 5
Potential gains of STT scheme for 35 industrial sectors during 2006–2015 (Trillion Yuan).
Sector 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total

S1 1.68 2.50 2.46 3.00 4.74 4.49 5.56 6.15 5.52 5.32 41.42
S2 0.46 0.64 0.89 0.90 1.47 1.50 1.61 1.71 1.36 1.01 11.54
S3 0.22 0.33 0.39 0.35 0.83 0.75 0.88 1.01 0.88 0.74 6.38
S4 0.20 0.29 0.24 0.25 0.31 0.29 0.39 0.42 0.40 0.47 3.27
S5 0.14 0.18 0.17 0.19 0.25 0.20 0.28 0.31 0.36 0.39 2.45
S6 0.97 1.47 1.34 1.57 2.37 2.17 2.54 2.93 3.03 3.09 21.48
S7 0.60 0.80 0.70 0.79 1.07 0.98 1.13 1.28 1.33 1.47 10.16
S8 0.66 0.82 0.78 0.77 1.20 1.06 1.23 1.48 1.41 1.52 10.94
S9 0.04 0.03 0.03 0.02 0.02 0.01 0.03 0.05 0.04 0.05 0.32
S10 2.01 2.62 2.14 2.14 2.91 2.47 2.36 2.49 2.33 2.35 23.83
S11 0.60 0.78 0.67 0.64 0.77 0.71 1.09 1.22 1.15 1.22 8.85
S12 0.33 0.44 0.35 0.34 0.38 0.38 0.58 0.63 0.63 0.67 4.73
S13 0.26 0.37 0.37 0.37 0.49 0.40 0.45 0.53 0.57 0.61 4.44
S14 0.21 0.25 0.23 0.23 0.28 0.27 0.40 0.46 0.42 0.44 3.21
S15 0.96 1.14 1.08 1.07 1.61 1.36 1.49 1.64 1.37 1.42 13.15
S16 0.31 0.34 0.32 0.32 0.34 0.27 0.40 0.48 0.45 0.51 3.74
S17 0.19 0.21 0.18 0.17 0.19 0.15 0.67 0.78 0.88 0.94 4.35
S18 1.11 1.18 1.45 1.32 1.77 2.10 2.19 2.22 2.10 1.64 17.08
S19 3.14 3.64 3.76 3.80 5.77 5.29 6.11 7.18 6.54 6.19 51.43
S20 0.99 1.18 1.03 1.13 1.77 1.50 1.79 2.21 2.15 2.50 16.26
S21 0.47 0.52 0.46 0.41 0.60 0.63 0.68 0.78 0.63 0.59 5.76
S22 0.39 0.53 0.47 0.47 0.65 0.61 0.62 0.67 0.66 0.68 5.74
S23 0.88 1.12 0.96 0.95 1.23 1.00 1.27 1.39 1.20 1.32 11.31
S24 2.29 2.71 2.58 2.85 4.07 3.68 4.36 4.94 4.93 5.06 37.46
S25 3.60 4.12 4.61 4.54 5.74 5.92 6.30 6.55 5.88 4.88 52.16
S26 1.32 1.70 1.84 1.84 2.70 2.66 3.05 3.38 3.14 2.73 24.35
S27 0.96 1.36 1.28 1.35 1.64 1.45 2.23 2.52 2.25 2.37 17.40
S28 1.99 2.81 2.71 2.93 4.01 3.60 3.58 4.00 3.43 3.93 33.00
S29 1.31 1.65 1.59 1.78 2.24 2.04 2.26 2.57 2.54 2.67 20.65
S30 2.47 2.92 2.92 3.44 4.08 4.00 4.56 5.11 4.81 5.69 40.02
S31 1.85 2.12 2.24 2.36 2.83 2.90 3.27 3.57 3.82 3.67 28.64
S32 2.48 2.75 2.79 2.79 3.21 3.33 3.56 3.89 4.15 4.43 33.40
S33 0.34 0.37 0.39 0.44 0.45 0.49 0.47 0.52 0.46 0.50 4.44
S34 0.24 0.35 0.27 0.28 0.31 0.31 0.03 0.07 0.02 0.06 1.95
S35 3.06 3.53 4.02 2.93 2.94 2.83 3.80 4.23 4.51 5.12 36.96
Total 38.75 47.79 47.70 48.73 65.24 61.83 71.21 79.39 75.36 76.27 612.26
Percent (%) 77.36 78.32 76.35 72.48 75.34 72.20 73.28 74.03 71.65 71.02 73.76

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Y.-J. Zhang, et al. Applied Energy 260 (2020) 114290

Table 6
Potential carbon emissions reduction of ST scheme for 35 industrial sectors during 2006–2015 (Million tonnes).
Sector 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total Percent (%)

S1 30.39 27.42 30.61 59.39 61.50 71.65 88.78 81.88 67.07 51.49 570.20 54.84
S2 0.00 0.57 3.19 6.72 11.01 11.74 11.33 11.40 14.15 12.87 82.98 27.72
S3 2.94 2.92 4.93 3.18 11.18 8.65 8.72 8.80 9.35 7.61 68.28 48.29
S4 0.83 0.99 0.86 0.76 0.89 1.01 1.77 1.36 2.14 1.92 12.53 27.20
S5 3.49 2.27 2.35 2.35 2.33 0.79 4.95 3.05 5.77 5.90 33.24 26.92
S6 14.83 13.59 16.63 16.25 15.66 15.34 17.34 16.20 24.90 25.22 175.97 34.78
S7 14.16 11.15 11.70 11.62 10.16 10.73 10.73 10.19 12.61 11.97 115.02 44.79
S8 18.39 15.79 16.52 14.31 9.69 10.26 11.28 11.44 13.74 12.80 134.23 51.00
S9 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
S10 38.61 32.30 29.99 26.51 25.96 27.53 26.49 21.99 19.78 18.19 267.35 51.83
S11 3.57 3.20 3.56 2.83 2.95 2.44 4.80 3.80 3.68 2.95 33.78 42.52
S12 1.92 1.71 1.50 1.22 1.09 0.91 2.64 2.13 1.99 1.68 16.80 34.27
S13 6.19 4.59 5.49 4.36 3.66 2.70 4.79 3.87 6.38 5.10 47.12 34.95
S14 0.00 0.06 0.42 0.51 0.76 0.86 0.47 0.60 0.79 0.45 4.93 22.97
S15 39.26 34.99 39.19 39.41 33.62 34.36 30.07 24.94 22.10 19.80 317.73 64.39
S16 0.26 0.32 0.57 0.60 0.60 0.23 0.08 0.61 1.72 1.43 6.42 27.35
S17 0.00 0.00 0.00 0.00 0.00 0.00 1.66 1.91 2.68 2.37 8.63 37.49
S18 28.53 28.99 32.45 32.52 31.15 38.15 33.53 29.74 31.58 34.14 320.77 57.31
S19 268.05 245.01 258.88 246.79 223.42 261.91 279.83 273.05 313.68 330.80 2701.43 61.53
S20 14.83 13.57 13.54 11.52 12.11 13.79 15.13 14.28 15.51 15.64 139.92 57.10
S21 11.34 10.42 9.08 7.39 7.50 9.81 9.63 8.62 7.49 7.39 88.69 67.81
S22 7.61 7.06 7.56 6.40 5.86 6.06 5.98 5.07 5.29 4.96 61.84 54.47
S23 8.61 7.28 7.96 6.65 6.69 6.00 6.17 5.27 5.69 5.16 65.48 54.80
S24 314.34 272.03 295.86 282.43 280.96 344.07 360.89 332.20 371.91 344.69 3199.37 57.84
S25 519.95 537.51 597.38 692.59 753.40 836.02 894.23 875.05 923.42 811.27 7440.81 61.39
S26 34.76 35.46 38.72 38.78 37.15 40.76 40.23 35.10 38.36 35.50 374.83 58.13
S27 9.23 8.86 10.03 9.22 8.38 7.79 12.25 11.12 10.84 9.87 97.58 54.43
S28 22.34 22.95 26.92 26.64 26.97 34.65 22.33 18.53 20.51 19.71 241.55 58.25
S29 8.45 8.64 9.39 9.12 11.08 9.98 8.03 7.66 8.07 6.51 86.94 63.36
S30 15.34 15.55 17.24 16.41 16.23 16.00 16.28 15.19 14.11 12.35 154.71 66.06
S31 7.05 7.34 7.56 6.96 7.56 6.03 6.67 5.97 4.68 4.16 63.97 55.66
S32 2.08 3.28 3.50 3.91 3.75 0.00 1.01 1.07 1.45 1.18 21.23 33.05
S33 0.00 0.00 0.00 0.00 0.13 0.00 0.00 0.00 0.00 0.00 0.13 0.87
S34 0.89 1.00 1.02 0.96 0.81 0.81 0.00 0.00 0.00 0.00 5.50 19.33
S35 28.21 30.00 39.38 23.29 20.55 19.03 16.10 16.24 11.28 9.45 213.52 56.33
Total 1476.47 1406.80 1544.00 1611.59 1644.74 1850.08 1954.17 1858.36 1992.73 1834.52 17173.46 58.30
Percent (%) 58.68 52.32 55.00 55.02 57.14 57.70 60.71 58.61 64.54 62.09 58.30

to other sectors.
On the other hand, ST and STT schemes have little impact on eco-
nomic output of the following seven industrial sectors: the mining and
processing of non-ferrous metal ores (S4), mining and processing of
nonmetal ores (S5), manufacturing of tobacco (S9), manufacturing of
furniture (S14), printing, reproduction of recording media (S16), man-
ufacturing of measuring instruments and machinery for cultural activity
and office work (S33) and manufacturing of artwork and other manu-
facturing (S34), and their average potential gains are all less than 0.5
trillion yuan during 2006–2015. The reason is that these sectors have
relatively lower CO2 emissions. As a result, they could not provide
additional quotas for trading, nor do they need to buy many quotas
from other sectors, so their participation does not have a substantial
impact; namely, they could not obtain many additional gains from
carbon trading market, nor will they lose substantial economic gains.
Third, in terms of the percentage of potential gains, as shown in the
last lines of Tables 4 and 5, it has been increased by 55.17% and
73.76% from 2006 to 2015 in the whole industry under the impact of
ST and STT schemes, respectively. With the development of carbon
trading market, the potential gains gradually increase, but their per-
centages show a relatively volatile trend.
4.2. Impact on carbon dioxide reduction
Based on Model (2), (5), and (8), we evaluate the carbon dioxide
emissions reduction potential of the whole industry (see Fig. 1), the
emissions reduction potential and percentage of 35 industrial sectors
(see Tables 6 and 7). The main results include:
First of all, carbon trading could create a certain emissions
reduction potential, and is conducive to the industrial sector to achieve
energy conservation and emissions reduction targets. As seen from
Fig. 1, the ST and STT schemes can produce carbon dioxide emissions
reduction potential of 17.17 and 19.22 billion tonnes, and contribute
58.30% and 65.25%, respectively, to emissions reduction across the
whole industry. With the gradual improvement of carbon trading
market, the potential for emissions reduction also grows. Taking the ST
scheme as an example, the potential emissions reduction increased from
1.48 billion tonnes in 2006 to 1.83 billion tonnes in 2015. Corre-
spondingly, the contribution of carbon trading to emissions reduction
also grows, from 58.68% in 2006 to 62.09% in 2015.
Second, in terms of various industrial sectors, there is different
impact of carbon trading on the potential emissions reduction in each
sector. We can obtain the following results from Tables 6 and 7: (1) for
the ST scheme, the emissions reduction potential is positive across 35
industrial sectors, indicating that carbon trading helps to reduce their
carbon dioxide emissions, and those sectors can further purchase or sell
carbon emissions quota according to their emissions reduction potential
less or more than the specified emissions reduction targets. Among
them, three sectors, i.e., the manufacturing of raw chemical materials
and chemical products (S19), manufacturing of non-metallic mineral
products (S24), and smelting and pressing of ferrous metals (S25), have
significant emissions reduction potentials, i.e., 2.70, 3.20, and 7.44
billion tonnes, respectively. This is because they are China’s emissions
intensive sectors, and thus have greater potential for emissions reduc-
tion.
(2) For the STT scheme, there are 12 industrial sub-sectors with
negative emissions reduction potential, indicating that these sectors
may increase CO2 emissions under the carbon trading scheme to meet

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Table 7
Potential carbon emissions reduction of STT scheme for 35 industrial sectors during 2006–2015 (Million tonnes).
Sector 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total Percent (%)

S1 10.43 5.94 0.58 14.86 53.98 32.82 61.52 57.97 33.16 17.35 288.61 27.76
S2 −8.14 −9.66 −13.05 −12.12 −14.30 −13.30 −8.32 −1.97 −4.54 −9.06 −94.46 −31.55
S3 1.51 6.35 0.32 0.19 4.64 0.28 0.81 1.42 0.95 1.13 17.60 12.45
S4 0.72 0.15 −0.03 −0.10 −0.22 −0.42 −0.28 −0.29 −0.29 −0.03 −0.78 −1.70
S5 1.96 3.37 4.13 3.69 8.51 4.76 6.64 3.70 4.65 4.67 46.08 37.32
S6 7.76 23.70 0.00 0.00 12.94 0.00 0.00 0.00 0.00 0.00 44.39 8.77
S7 4.11 8.58 −0.23 0.50 10.60 5.65 2.83 3.89 0.75 −1.06 35.62 13.87
S8 3.60 17.69 0.88 1.85 4.40 0.10 4.51 4.65 4.43 5.46 47.57 18.07
S9 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
S10 8.28 3.65 3.29 2.12 14.18 0.24 0.47 0.37 0.03 0.32 32.95 6.39
S11 0.28 −0.36 −0.23 −0.46 −0.18 −0.23 0.08 0.17 0.04 0.06 −0.84 −1.05
S12 0.41 −0.09 −0.22 0.00 0.00 0.00 0.10 0.14 0.00 0.00 0.34 0.69
S13 2.11 1.06 1.12 0.74 5.89 0.00 0.00 0.00 0.00 0.00 10.92 8.10
S14 −0.03 −0.06 −0.11 −0.20 −0.15 −0.13 −0.02 −0.01 −0.03 −0.05 −0.78 −3.63
S15 7.77 40.24 18.61 25.81 32.89 26.07 26.17 20.33 16.80 18.47 233.17 47.25
S16 −0.06 −0.12 −0.17 −0.20 −0.23 −0.20 −0.09 −0.16 −0.25 −0.10 −1.58 −6.72
S17 −0.09 −0.13 −0.14 −0.16 −0.11 −0.04 0.00 0.00 0.00 0.00 −0.67 −2.91
S18 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
S19 205.32 343.35 286.85 279.49 273.41 301.64 362.63 361.76 369.72 408.62 3192.80 72.72
S20 1.13 1.37 0.51 0.10 −0.65 −0.37 2.46 −0.19 −0.42 4.66 8.59 3.51
S21 0.89 0.47 0.28 0.54 0.05 0.55 4.95 3.90 1.37 2.01 15.01 11.47
S22 1.63 0.68 0.01 0.37 2.97 0.10 −0.13 −0.13 −0.19 −0.07 5.23 4.61
S23 0.71 −0.47 −0.32 −0.51 −0.99 −0.74 −0.16 −0.11 −0.28 0.19 −2.68 −2.24
S24 282.15 458.84 442.26 436.61 465.85 571.56 546.53 516.92 489.07 456.71 4666.50 84.36
S25 659.00 754.86 803.12 936.51 1070.58 1162.47 1293.38 1337.27 1345.89 1239.73 10602.81 87.48
S26 5.09 7.74 3.09 4.68 3.63 3.61 9.98 4.41 4.38 4.65 51.27 7.95
S27 1.02 −0.23 −0.81 −0.61 −1.10 −0.96 −0.49 −0.46 −0.47 0.46 −3.64 −2.03
S28 4.23 2.13 1.19 1.45 −0.60 2.31 2.09 1.39 1.70 3.64 19.52 4.71
S29 0.04 −0.48 −0.41 −0.63 −1.04 −1.12 −0.78 −1.11 −0.89 0.21 −6.20 −4.52
S30 −0.46 −0.72 −1.09 −1.42 −1.24 −1.74 −1.96 −2.01 −2.32 −0.68 −13.63 −5.82
S31 −0.07 −0.25 −0.01 −0.28 −0.32 −0.24 −0.19 −0.15 0.18 0.44 −0.89 −0.78
S32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
S33 0.04 0.03 0.07 0.04 −0.03 0.00 0.03 0.03 −0.01 0.00 0.20 1.39
S34 0.13 −0.21 −0.12 −0.18 −0.09 −0.07 0.03 0.04 0.03 0.19 −0.26 −0.91
S35 0.51 1.10 2.59 2.53 2.09 1.91 2.35 3.25 7.10 4.23 27.65 7.30
Total 1201.95 1668.53 1551.97 1695.21 1945.36 2094.53 2315.12 2315.01 2270.58 2162.18 19220.43 65.25
Percent (%) 47.77 62.05 55.28 57.88 67.58 65.32 71.92 73.02 73.54 73.17 65.25

their development needs. In other words, these 12 industrial sub-sectors
would become purchasers of emissions allowances from 2006 to 2015.
Taking the sector of extraction of petroleum and natural gas (S2) as an
example, its carbon dioxide emissions reduction potential is negative,
about −9.45 million tonnes: this is because, on the one hand, the
petroleum industry is a pillar industry for the national economy, and
the demand for petroleum products has been growing rapidly with the
development of China’s economy. To satisfy economic needs, the pet-
roleum industry needs to continuously expand its production scale,
leading to more emissions. On the other hand, as an efficient and clean
energy, natural gas has become one of the most important energy
sources worldwide. In short, the sector of extraction of petroleum and
natural gas (S2) plays an important role in promoting economic output,
optimizing energy structure, ensuring energy supply and improving
people’s quality of life. Under the constraint of carbon trading, this
industry has to purchase a certain amount of CO2 emissions allowances
to meet the development needs of the industry.
Third, according to the last lines of Tables 6 and 7, we can find that,
with the evolution of carbon trading market from 2006 to 2015, its
contribution to the actual reduction of carbon dioxide emissions also
increased. Taking the ST scheme as an example, the contribution of
sectoral trading to the whole industry increased from 58.68% in 2005
to 62.09% in 2015. Considering the specific industry sector, in parti-
cular, there are six sectors, i.e., the manufacturing of paper and paper
products (S15), manufacturing of raw chemical materials and chemical
products (S19), manufacturing of chemical fibers (S21), smelting and
pressing of ferrous metals (S25), manufacturing of special purpose ma-
chinery (S29), and manufacturing of transport equipment (S30), are af-
fected to a greater extent, and their contribution to the actual emissions
reduction all exceeds 60%. This is consistent with our findings that the
greater a sector’s CO2 emissions, the greater its potential on emissions
reduction. Compared to other sectors, they are more vulnerable to the
impact of carbon trading, and they should have been involved in carbon
trading at an earlier stage of the carbon market operation.
4.3. Impact on industrial carbon intensity
Carbon trading can not only help the industrial sectors to reduce
emissions, but also achieve the target of reducing the carbon intensity.
Our calculation indicates that, if the carbon trading had been im-
plemented since 2006, the percentages of carbon intensity reduction of
the whole industry and 35 industrial sectors during 2006–2015 are
shown in Fig. 2.
According to Fig. 2, if the ST scheme was launched in the whole
industry since 2006, the carbon intensity would be reduced by 34.89%
compared to 2006 during the 11th Five-Year Plan Period, and 47.44%
compared to 2010 during the 12th Five-Year Plan Period. For the
carbon intensity of each sector, almost all of them have a certain
downward trend. Combining with the results of Sections 4.1 and 4.2,
we can find that carbon trading is not only conducive to the economic
output of industrial sector, bringing potential gains for the whole in-
dustry and 35 industrial sectors, but also beneficial to the realization of

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Y.-J. Zhang, et al. Applied Energy 260 (2020) 114290

(a) The percentage of carbon intensity reduction under the ST scheme

(b) The percentage of carbon intensity reduction under the STT scheme
Fig. 2. Percentage of carbon intensity reduction in the 11th and 12th Five-Year Plan periods.

emissions reduction potential. Both of these two aspects contribute to
the carbon intensity reduction target for the whole industry and 35
industrial sectors, and they also reflect the importance of carbon
trading in China to achieve CO2 emissions and carbon intensity re-
duction targets.
In addition, according to the13th Five-Year Plan6 and Industrial
Green Development Plan (2016–2020),7 the energy consumption per
unit of industrial value-added (i.e., industrial energy intensity) of the
above-scale enterprises in China should be 18% lower in 2020 than that
in 2015, and the CO2 emissions per unit of industrial value-added (i.e.,
industrial carbon intensity) should be 22% lower in 2020 than that in
6
http://news.xinhuanet.com/politics/2016lh/2016–03/17/c_1118366322.
htm.
7
http://www.miit.gov.cn/n1146285/n1146352/n3054355/n3057542/
n3057544/c5142900/content.html.
2015. Therefore, we apply Model (5) to calculate the economic output
and CO2 emissions of the whole industry and 35 industrial sectors in the
case of carbon trading and assess the impact of carbon trading on the
industrial sector until 2020, thus we can estimate the effect of carbon
trading market from the perspective of carbon intensity by 2020. Spe-
cifically, referring to Cui et al. [47], we set the growth rate of China’s
industrial value-added as 5.5% from 2016 to 2020 as China may ex-
perience a slowdown of economy in the 13th Five-Year Plan period.
That is to say, the growth rates of capital stock and industrial value-
added are set as 5.5%. Meanwhile, we assume that the growth rate of
labour force in the industrial sector is the same as the natural popula-
tion growth rate, so we set this as 6‰ according to the National Family
Planning Development Plan during the 13th Five-Year Plan period.8
Table 8 lists the percentage of carbon intensity reduction of the
8
http://www.nhfpc.gov.cn/jczds/pqt/new_list.shtml.

10
Y.-J. Zhang, et al. Applied Energy 260 (2020) 114290

Table 8
The carbon intensity and percentage of carbon intensity reduction in 2020 compared to the 2015 level.
Sector Carbon intensity (kg/Yuan) Percentage of carbon intensity reduction (%) Sector Carbon intensity (kg/Yuan) Percentage of carbon intensity reduction (%)

ST STT ST STT ST STT ST STT

S1 0.0098 0.0074 51.3043 11.2678 S19 0.0373 0.0078 15.4375 37.8013

S2 0.0080 0.0117 −62.7368 46.2654 S20 0.0079 0.0056 51.5272 5.2648
S3 0.0104 0.0081 33.9937 27.1871 S21 0.0081 0.0087 12.6659 27.4516
S4 0.0074 0.0053 47.5981 1.5046 S22 0.0109 0.0094 59.5064 −10.0158
S5 0.0355 0.0098 68.8945 2.5252 S23 0.0055 0.0048 60.1525 −9.3813
S6 0.0154 0.0098 59.7913 1.8957 S24 0.0792 0.0097 52.6605 −7.1422
S7 0.0160 0.0098 68.9476 1.7033 S25 0.0822 0.0119 −33.8737 27.6977
S8 0.0132 0.0064 56.8692 13.4993 S26 0.0115 0.0105 26.4937 25.8507
S9 0.0025 0.0023 34.2121 −51.7430 S27 0.0052 0.0047 61.9684 −4.0351
S10 0.0124 0.0098 59.5840 −9.7024 S28 0.0058 0.0054 51.9248 −5.4858
S11 0.0048 0.0038 54.9336 −22.7289 S29 0.0020 0.0030 48.7200 −14.2881
S12 0.0060 0.0042 56.9500 −24.0911 S30 0.0015 0.0027 37.7435 −10.7082
S13 0.0243 0.0098 70.4173 7.2464 S31 0.0013 0.0017 40.5375 −32.4393
S14 0.0101 0.0028 51.2269 −4.8845 S32 0.0018 0.0008 46.8479 −34.2832
S15 0.0157 0.0071 48.0897 −15.7535 S33 0.0043 0.0013 26.9723 −14.9147
S16 0.0093 0.0030 75.5766 19.4463 S34 0.0087 0.0040 16.3608 24.4261
S17 0.0079 0.0026 85.5870 7.3551 S35 0.0017 0.0031 41.7209 −104.8875
S18 0.0106 0.0145 −16.4789 39.9196 Total 0.0181 0.0066 19.7956 10.2539

whole industry and 35 industrial sectors in 2020 compared to 2015 in
the case of ST and STT schemes,9 and the results show that: (1) As for
the whole industry, the carbon intensity in 2020 will decrease by
19.80% and 10.25% compared to 2015 after the implementation of ST
and STT schemes, respectively, making a big contribution to the es-
tablished target of industrial carbon intensity reduction, i.e., 22%. (2)
As far as the 35 industrial sub-sectors are concerned, most sectors can
achieve the dual goals of economic output and carbon intensity re-
duction. This is similar to the findings of Tang and Wu [48]. They be-
lieve that, compared to the tough policy measures taken by the gov-
ernment to create energy savings and emissions reductions, carbon
trading scheme can mitigate and compensate for the social and eco-
nomic welfare losses. Similarly, Asafu-Adjaye and Mahadevan [49] also
argue that carbon trading scheme is more effective in reducing CO2
emissions than energy taxes in Australia. In carbon trading market, the
economy of individual participants might be affected or hurt to a cer-
tain extent, but carbon trading is still the focus of energy saving and
emissions reduction targets on the whole and in the long term. For
China, the construction of national carbon trading market is a long-term
and arduous process. With the improvement of carbon trading me-
chanisms, the impact of carbon trading on economic output and emis-
sions reduction would become increasingly significant over time.
5. Conclusions and policy implications
Based on the data envelopment analysis optimization model under
three carbon trading schemes, i.e., no trading, sectoral trading, and
sectoral-and-temporal trading, we evaluate the impact of carbon
trading on economic output, carbon dioxide emissions reduction po-
tential, and contribution to emissions reduction potential of China’s
industry and 35 industrial sectors during 2006–2015, and estimate the
impact of carbon trading on industrial carbon intensity by 2020. Main
conclusions can be drawn as follows:
First of all, carbon trading is conducive to the economic output of
industrial sectors, bringing potential gains to the whole industry and its
35 industrial sub-sectors, but different impacts exist among industrial
sub-sectors. Moreover, the longer period over which carbon trading is
9
We also calculated the impact of carbon trading on the economic output,
carbon emissions reduction potential, and contribution to carbon emissions
reduction in 2020 (data not listed). Detailed results can be obtained upon re-
quest from the authors.
implemented, the more potential gains it brings for the whole industry
and 35 industrial sub-sectors.
Second, carbon trading can create a certain emissions reduction
potential for the whole industry. In terms of different industrial sub-
sectors, they are influenced to different extents. Similarly, with the
longer time of carbon trading market, the CO2 emissions reduction
potential generated by carbon trading will grow, as will the contribu-
tion to emissions reduction potential.
Finally, if the sectorial trading scheme had been implemented since
2006 in China’s industrial sector, its carbon intensity would have been
decreased by 34.89% and 47.44% during the 11th and 12thFive-Year
Plan period, respectively, and it is expected to decrease by 19.80%
during the 13th Five-Year Plan period, i.e., 2016–2020, making a sig-
nificant contribution to the established industrial carbon intensity re-
duction target, i.e., 22%. And if the sectoral-and-temporal trading
scheme had been adopted, the carbon intensity of China’s industrial
sectors would decrease by 58.93%, 31.50% and 10.25% during China’s
11th, 12th and 13th Five-Year Plan period, respectively.
Based on these findings and the practice of China’s carbon trading
market, we offer the following policy recommendations: (1) Carbon
trading can bring more economic benefits and emissions reduction
potential for the whole industry and help most industrial sectors to
achieve national carbon intensity reduction targets. Therefore, the
Chinese government should advocate a further expansion of its carbon
trading market by covering more industrial sectors; however, it is not
necessary for all industrial sectors to be included in the carbon trading
market. (2) The government should give necessary technical support
and financial incentive to encourage those industrial sectors and en-
terprises, who participate in carbon market in the early stage, to help
them adapt to carbon trading as soon as possible. It can not only ensure
them to realise their maximum potential for CO2 emissions reduction,
but also reduce the impact on its economic output, and fully motivate
market participants.
With the launch of China’s national unified carbon trading market,
there are still a number of relevant research are as worthy of future
effort beyond this paper. For example, if allowed by the data, we can
assess the impact of carbon trading on the economic output and emis-
sions reduction potential of China at the city level and explore possible
spatial relationship among different regions. In addition, we can also
explore the impact of carbon trading on emissions reduction costs and
technological innovation; and in particular, the impact of different
carbon trading schemes, at the industrial, provincial or city levels.

11
Y.-J. Zhang, et al. Applied Energy 260 (2020) 114290

Declaration of Competing Interest Acknowledgments

The authors declare that they have no known competing financial The authors gratefully acknowledge the financial support of the
interests or personal relationships that could have appeared to influ- Major Program of National Fund of Philosophy and Social Science of
ence the work reported in this paper. China (no. 18ZDA106).

Appendix A

See Table A.

Table A
The names of 35 industrial sectors in this paper.
Sector Name

S1 Mining and Washing of Coal

S2 Extraction of Petroleum and Natural Gas
S3 Mining and Processing of Ferrous Metal Ores
S4 Mining and Processing of Non-Ferrous Metal Ores
S5 Mining and Processing of Nonmetal Ores
S6 Processing of Food from Agricultural Products
S7 Manufacture of Foods
S8 Manufacture of Beverages
S9 Manufacture of Tobacco
S10 Manufacture of Textile
S11 Manufacture of Textile Wearing Apparel, Footware, and Caps
S12 Manufacture of Leather, Fur, Feather and Related Products
S13 Processing of Timber, Manufacture of Wood, Bamboo, Rattan, Palm, and
Straw Products
S14 Manufacture of Furniture
S15 Manufacture of Paper and Paper Products
S16 Printing, Reproduction of Recording Media
S17 Manufacture of Articles for Culture, Education and Sport Activity
S18 Processing of Petroleum, Coking, Processing of Nuclear Fuel
S19 Manufacture of Raw Chemical Materials and Chemical Products
S20 Manufacture of Medicines
S21 Manufacture of Chemical Fibers
S22 Manufacture of Rubber
S23 Manufacture of Plastics
S24 Manufacture of Non-metallic Mineral Products
S25 Smelting and Pressing of Ferrous Metals
S26 Smelting and Pressing of Non-ferrous Metals
S27 Manufacture of Metal Products
S28 Manufacture of General Purpose Machinery
S29 Manufacture of Special Purpose Machinery
S30 Manufacture of Transport Equipment
S31 Manufacture of Electrical Machinery and Equipment
S32 Manufacture of Communication Equipment, Computers and Other
Electronic Equipment
S33 Manufacture of Measuring Instruments and Machinery for Cultural
Activity and Office Work
S34 Manufacture of Artwork and Other Manufacturing
S35 Production and Distribution of Electric Power and Heat Power

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