Carbon emission permits: A new asset, Chinese potential market and allocation mechanism

Global warming and associated carbon emissions are of key environmental focus at present, because climate change has influenced normal economic development and social stability. To slow the rate of global warming, many countries have adopted some measures to reduce carbon dioxide emissions. Typically, the European Union established the emission-and-trade scheme in 2005. With time, the percentage of carbon emission permits auctioned increases fast in the scheme. This paper describes the whole process of the auction-and-trade scheme, analyzes unique features of carbon emission permits as a new asset, discusses their potential market in China, and designs a new allocation mechanism for carbon emission permits. The result shows that the proposed mechanism converges to a unique Walrasian equilibrium in the finite round. The main aim is twofold. The first goal is to demonstrate how carbon emission permits become a new asset and what their unique features are. The second goal is to examine Chinese carbon trade market and how to allocate permits efficiently. Through this paper, we hope that it can give some insights and new issues to researchers.