Skip to main content

2017-06-11 | Peer Reviewed

Can an Emission Trading Scheme Promote the Withdrawal of Outdated Capacity in Energy-Intensive Sectors? A Case Study on China's Iron and Steel Industry

Zhu, Lei, Xiaobing Zhang, Yuan Li, Xu Wang and Jianxin Guo. 2017. “Can an emission trading scheme promote the withdrawal of outdated capacity in energy-intensive sectors? A case study on China's iron and steel industry.” Energy Economics. 63:March: 332-347.
Download reference Doi:10.1016/j.eneco.2017.02.004

Outdated capacity and substantial potential for energy conservation are the two main features of energy-intensive sectors in developing countries. Such countries also seek to implement market-based options to further control domestic carbon emissions as well as to promote the withdrawal of outdated capacity and upgrade production level. This paper presents a quantitative assessment of the emission trading scheme (ETS) for China's iron and steel industry. The diverse array of normal and outdated capacities was modeled in a two-country, three-good partial equilibrium model. Simulation results show that the abatement potential can be underestimated if the energy-saving effects that result from emission abatement are not considered. In the scenario analysis, we demonstrated that the free allocation of allowances can cause a competitiveness distortion among domestic normal and outdated capacities. Given the government's intention to promote outdated capacity withdrawal and production-level upgrading, an output-based allocation approach is strongly suggested for China's iron and steel sector.