Pricing of Chinese Certified Emissions Reduction Scheme in a Supply Chain Under the Cap-and-Trade Policy

Abstract

Against the backdrop of carbon trading, the Chinese Certified Emissions Reduction (CCER) scheme is one of the most important measures of China to reduce carbon emissions. We study a supply chain consisting of a CCER supplier and a manufacturer that buys CCER quotas from the supplier. The supplier is a non-emissions-control enterprise engaged in clean energy projects, while the manufacturer is classified into three types: a clean, a relatively clean, and an unclean firm. We analyse the impacts of the price and offset rate of CCER quotas on firms’ emissions reductions. We find that when the price of CCER quotas is lower than the price of Chinese Emissions Allowances (CEAs): (1) for both clean and unclean manufacturers, with increasing CCER offset rate (quota price), technical emissions reduction decreases (increases). (2) The incentive for the relatively clean manufacturer to reduce emissions is not affected by other extraneous factors. When the prices of CCER quotas and CEAs are uncertain, we find that (1) the technology abatement decisions of the three types of manufacturer are consistent and the corresponding CCER suppliers price their CCER quotas in the same way. (2) When the proportion of CCER quotas purchased by the manufacturer increases, the unit technical emissions reduction increases. Confirming that introduction of the CCER scheme can reduce carbon emissions, our findings provide theoretical guidance for suppliers to make pricing decisions on CCER quotas and for manufacturers to make technical emissions reduction decisions.