Climate change risks caused by the increase in greenhouse gases are getting close attention of the community. The carbon dioxide emission reduction activities on a global scale have heated up. China takes its responsibility of a big country, making the commitment to the international community to reduce carbon dioxide emissions per unit of GDP by 40%-45% in 2020 compared with 2005. This will undoubtedly be a challenge for our country: due to China’s significant regional differences, how can the overall requirements on the national level meet in detail in the administrative areas? How to guarantee the smooth market trades after the initial allocation?Scientific and rational regional allocation of carbon emissions responsibility is a key to achieve national emission reduction targets. Accurate and proper accounting of carbon emissions base is the foundation of the regional distribution of emission reduction responsibilities. Integrated and systematic metrics and methods is the core to assign each region’s responsibility. In addition to ‘dominant carbon emissions’ resulting from direct energy consumption, the transfer of ‘embodied carbon’ cannot be ignored due to inter-provincial trades. Thus, based on fairness and efficiency, an entropy weights TOPSIS model for initial allocation of regional emission reduction share is established, as well as the impact of inter-provincial trades considered and multi-criteria decision-making methods utilized. The empirical results match the reality so is basically accurate.The initial allocation methods and price mechanism of emission allowances are important factors of the carbon trading market performance, as well as a key part of the carbon trading market’s normal operations. Setting reasonable carbon emission quotas initial allocation is the most important issue for China to establish a national carbon trading market. This paper chooses free distribution as main distribution method and paid distribution(public auction, fixed prices) as supplementary. Introduction of the option to the initial allocation of emission allowances is also proposed, as the price stabilization mechanism and risk prevention mechanism. Enterprises can be assigned to a certain amount of free carbon emissions quotas. Then they select to buy the options or to reduce carbon emissions by themselves. In a series of strict assumption, the Black-Scholes option pricing model is used for option pricing. Empirical research has been conducted and the result is a further proof to the feasibility of the mechanism. |