Research On Establishing And Implementing Emission Permits Trade System In China

China's economic development has been proceeding under the condition of large population, rare resource per capita, backward economy and science and technologies, thus facing double pressures of economic development and ecological environment. Currently, contradictions of population, ecology, environment, resource have become more and more critical and have already become the bottleneck of sustainable development. How to fulfill comprehensive economic and social development is not only a significant project for all Chineses, but is more an important responsibility that every theorist should shoulder. We have to think about and furthermore set up newly-typed policy for governing environment pollution and protecting ecological environment. Building up pollution emission permits trade market is one of the most important parts. In a sense, building up emission permits market is fundamental to carry out sustainable development strategy. It's a significant measure for achieving the goal of energy saving, consumption reduction and pollution emission reduction, and for implementing the Scientific Concept of Development and constructing Harmonious Socialist Society. It's the inevitable choice for building resource-saving, environment-friendly society. It carries extremely important and far-reaching for adjusting economic structure, transferring growth ways, improving people's living quality and safeguarding long-term national benefit.The content of this article is built on two basic points. The first point, based on Institution Transformation Theory in Neo-Institution Economics and Institution Evolution Game Theory, etc., this article analyzes the problem of China's building up emission permits trade system from the aspect of institution transplantation. China is a developing country and it had"late development advantage". International experience shows that developing countries can save institution originating cost and shorten institution construction process through learning successful experience of developed countries and transplanting those maturely-grown institutions into their countries to build up their own institutions by ways of institution transplantation. However, international experience also warns developing countries that if they want a successful institution transplantation and achieve expected effect, they must deal with the problem of mutual adaptation between institution transplanted into and native culture and social environment very well. This article put much premium on this hint and points out that, on one side, China should choose the prospected transplanted institution scientifically and reasonable according to China's national situation and do necessary change and adjustment; on the other side, backward factors in China's native culture and social environment that are not good for transplanting institution should be removed to improve the mutual accommodation to make the transplanted institution can be rooted in China and become the emission permits trade system which is adaptive to China's requirement and become a powerful tool for pushing pollution governance and emission reduction. Studied around this thought, the article puts forward a series of ideas and concrete measures for establishing China's emission permits trade system. The second point, this article reveals and discusses the structure framework and concrete content of the emission permits trade system that China is going to build up systematically and completely. The article has designed the structure picture of emission permits trade system based on which the article has systematically and concretely analyzed the internal structure of component of this system, connection among each parts and the operation mechanism, important and difficult points in system establishment. This article extends its discussion around these two basic points and it covers eight chapters.The preliminary part starts from the study background and introduces the purpose and meanings, basic thinking approaches, framework structure, research methods, definition of relevant concepts and necessary interpretations.Chapter one: An overview of and brief comments on those important theories which will be mostly used in this article. Theories of Externality, New-institutional Economics, Transaction Cost, Welfare Economics, Rent Seeking will be presented. This chapter also makes comments on their combination with emission permits trade system and their applications in emission permits trade system.Chapter two: Basic characteristics of emission permits trade system. Social background and the pathway of the birth of emission permits trade, analysis of economic theorems and the property of emission permits, model description and features of emission permits trade system, feasibility, obstacles and difficulties for China to conduct emission permit trade, etc., are under consideration. There are two purposes to be showed in this chapter. The first is to get a better understanding of emission permits system and to deepen it theoretically. The second is to find the breakthrough point for China to building up emission permits trade system.Chapter three: Principles, ways and mathematical models for defining total quantity of emission permits. This chapter puts emphasis on the basic principles of defining total quantity of emission permits and makes relevant mathematical model. In special consideration of China's social and economical reality, this chapter comes up with a general approach for setting up China's total quantity of emission permits and for allocating initiative quota to respective province and city. Chapter four: Principles and ways for initial emission permits distribution.This chapter examines the basic principles for initial emission permits distribution and puts forward several alternative way. This part puts highlights the choice of the ways of initial emission permits distribution in China and suggests that at present stage, it's more appropriate for China to combine both ways of free distribution and paid distribution.Chapter five: Structure, operation and administration of emission permits trade market. Starting from the composition of emission permits trade market, this chapter examines the operation process and inner mechanism and mainly studies on how to protect emission permits market from malfunctioning and to strengthen market administration and comes up with some countermeasures.Chapter six: Legal protection and supervision mechanism for emission permits transactions. Beginning with theoretical basis of supervision of emission permits transactions, and concerning the status quo of and flaws in the laws and supervision system of China's emission permits trade, this chapter puts forth measures for enhancing legal protection and supervision system.Chapter seven: Approach, difficulties and analysis on the feasibility, in China's establishing emission permits trade system. This chapter discusses the possibility to build up emission permits trade system in China and puts forward the approach and measures for China to build up emission permits trade system. It also analyzes the obstacles and difficulties in constructing China's emission permits trade system, as well as the premium points.Chapter eight: Conclusion and policy suggestion. Based on the studies of previous seven chapters, this chapter summarizes the main viewpoints of the whole article and puts forward some policy suggestions for China's building up emission permits trade system and the operation mechanism. It also points out the orientation for future study.This essay puts forward several innovative viewpoints.1. Based on two fundamental features: emission permits are non-physical property exogenous rights formed the government's defining of environment public resource and emission permits trade system supply is some kind of public goods, and founded on Institution Transformation Theory and Institution Evolution Game Theory, etc., this article proposes that the establishment of China's emission permits trade system can only be conducted by the central government and initial definition of emission permits property should the starting point and fundamental basic theoretical points. The whole thesis extends from this basic point.The article argues, different from property based on physical assets, emission permits is obviously a kind of non-physical property exogenous property right, through administrative ways such as defining total quantity and distributing initial rights by the government for the purpose of protecting environment. In Institution Transformation Theory, the function of defining and executing can only be taken and implemented by the state. As regard for a country like China which has decades of provinces, this function can only be taken and implemented by the central government. Building up emission permits trade system is a kind of supply in the perspective for improving environment wellbeing level for the whole society, therefore it's public goods that individuals aren't willing to and incapable to take and can only leave to the central government who is responsible and capable to organize the implementation. This article also points out that in Coase Theorem, when the transaction cost is more than zero, the effectiveness of resource distribution and the efficiency of economy will be highly relevant to the initiative definition of property rights. Thereafter, to scientifically and reasonably determine the whole country's total quantity of emission permits and to define them and then to allocate them to the economic-social units such as enterprises fairly and reasonably is the fundamental phase and the starting point of emission permits trade activities.2. According to above mentioned basic theoretical viewpoints, this article has designed the basic framework and content of China's emission permits trade system. The article suggests that China's emission permits system should be composed of four rules: rule for determining the total amount of emission permits, rule for initial distribution of emission permits, rules for emission permits trade in primary market and secondary market, rule for emission permits market administration. Between two successive rules, there are continuation and relevance and each rule has several sub-rules. For example, rule for determining the total quantity of emission permits includes: rule for defining the categories of emission permits, rule for defining the emission permission period, rule for defining pollution factors, concrete principles for determining the total quantity of emission; rule for initial distribution of emission permits includes rule for defining distribution objects and rule for distribution ways; rule for emission permits market administration. Between two successive rules includes rule for defining participants'qualification and affirming the trade process among which the first rule involves rule for deciding compulsory participants, rule for defining free-willed participants, rule for defining the reserve center of emission permits trade while the second rule involves rule for checking enterprises'emission permission certificates, rule for supervising enterprises'pollution emission, rule for examining the emission quantity and rule for policy implementation, and so on; rule for emission permits market administration is mainly constructed the rule for affirming the result of emission permits trade.The different components in China's emission permits trade system are closely connected to each other and show characteristic of continuation between one another. Defining the categories of emission permits is precondition, and it's the object of emission permits as well, the kernel of which is to define environment resources property rights, the first step to internalize the externality of pollutants. Initial distribution is to quantify emission permits and allocate them to social-economic organizations, making them to be"private property rights"which are tradable in the market. So, fair and effective initial distribution is essential for smoothly pushing emission permits trade system. The secondary market is the place where emission permits trade take place, and is also the key knot for realizing optimum distribution of emission permits. Therefore, only to establish sound market rule and order to reduce transaction cost and attract more enterprises to take part in emission permits trade, can the goal of governing pollution by the hand of market be achieved. In Property Rights Economics, legal protection for property rights is an indispensable necessity for market mechanism to fully function. So, it's an important part in developing China's emission permits system to enhance legal protection.3. This article brings forward the basic approach, important and difficult points and relevant policy suggestions in China's building up and carrying out emission permits trade system.The article classifies the basic path of China's building up and carrying out emission permits trade system into four steps. The first step, the NPC Standing Committee is to work out laws to affirm environment resource property rights system, to amend and perfect laws, embodying the environment governance intention of"total quantity control"and legally affirming China's environment resources property rights system. The second step is to defining the emission permits total quantity for a certain pollutant at the national level and initially distribute them to respective provinces, followed by the initial distribution of emission permits to emission enterprises at provincial level. The third step is to establish secondary market for efficient transfer of emission permits property rights. The last step is to build up a sound, all-sided, efficient and three-dimensional supervision network.This article argues that the premium parts in China's building up emission permits trade are to solve the problem of lack of laws concerning emission permits property rights, to scientifically and reasonably determine the nation's total quantity of emission permit, to fairly and soundly define and distribute initial emission permits, to conduct emission permits trade in an open, fair and just way. While, the hard nuts are: how to cater to the requirements of both improving the environment protection quality and speeding up economic and social development in defining the total quantity of emission permit; how to assure the result of initial emission permits distribution will be truly fair and reasonable in defining and distributing initial emission permits, taking into comprehensive consideration of different development levels of different provinces, enterprises, economy and society, of the environment zone they are located in, and through guarding against the interruption of rent making– rent seeking behaviors; how to guard against deceptive practices and guarantee the authenticity and accuracy of residual emission quantity put on the market to trade by the enterprises. This article proposes a series of policy suggestions and measures for dealing with these important and difficult issues.For China's building up emission permits trade system, the article puts forward some policy making suggestion and measures as follows: to nurture the people's sense of environment protection and enhance social supervision of emission permits system; to construct a social environment full of credit and trust and raise the efficiency of establishing and implementing emission permits trade system; to set up sound relevant laws and regulations to provide sufficient legal basis for building up emission permits trade system; to enhance the governance of rent making– rent seeing behaviors in initial emission permits distribution; to take proactive measures to solve the problem of market malfunction in secondary market trade; to enhance the construction of emission permits market supervision system and change the relatively weak position of environment protection sectors to increase the enforcement of such sectors; to reform environment cost calculation methods based on the new"Accounting Standards"in which various external environment costs are clearly transferred into internal costs for encouraging enterprises to take part emission permits trade system; to employ other assisting relevant measures in environment governance by ways of emission permits trade system.4. The article deeply explores some important issues and comes out with some unique perspectives. Such as:(1) It has brought forward and proved emission permits'attribute of non-physical exogenous property rights. Emission permits are property rights formed from the government's defining and distributing the public resource---environment by administrative ways such as determining the total quantity and distributing initial rights for the purpose of protecting environment.(2) Taking into account of China's national feature, that is, China has vast territory and provinces, cities and regions located in the East, Middle and West have different economic and social development level and different geographical characteristics, this article proposes that the defining of total quantity and distribution of initial emission permits to respective provinces, cities and regions can only be executed by the central government, which is also be mathematically proved. Based on the analysis on the ways of initial emission permits distribution, the article unambiguously points out that at current stage, China should combine both ways of free and paid allocation and also gives a concrete model.(3) This article suggests that, in response to the situation that enterprises are lack of internal incentive to self constrain their behaviors on environment and in order to push enterprises to participate in emission permits trade, the environment costs calculation methods must be reformed and to design an effective system which can internalize enterprises'emission costs. That is, to require enterprises account the emission expenditures and costs into accounting items so that they have to take full responsibility for their emission behavior thus stimulating them to govern pollution and reduce emission proactively.(4) This article argues that active involvement of speculative traders can increase activeness of emission permits trade in secondary market and raise pricing effectiveness of emission permits market. However, at the beginning stage when the market is not mature and the supervision system is not perfect, speculators should not be allowed to be involved in transactions in order for preventing market chaos. When the market grows to be mature and with seamless supervision, speculators can be allowed to take part in emission permits trade, while at same time, vicious and excessive speculation should be guarded against.(5) This article studies the definition of inner value of emission permits through model building. The article suggests that in respect of emission permits market price formation, such ways as shadow price, auction, opportunity cost (pollution governance costs) , etc., can be used to find out the price and then to generalize various factors and then to work out a guiding price by the government's supervision sector. Participating enterprises can make deals according to this guiding price.Since emission permits trade system is a newly-born thing in China, this study in a sense is explorative; Added limited references, literatures and personal knowledge limitation, in this article, on one side, in emission permits'theoretical extension, there are places needed further and deeper research, such as cost-benefit analysis in the transformation of emission permits trade system and analysis on the structure of influence degree of emission permits market to goods market. On the other side, on the concrete design of China's conducting emission permits trade, there are no sufficient answers for some questions, such as, how to find out the balance point between economic growth rate and environment capacity scientifically and reasonably, how to perfect the system to allow speculators to take part in the transactions to activate the market and raise pricing efficiency. In the future study, the author will try harder to keep further exploration to make up for those insufficient parts.