The Efficiency of China’s Carbon Trading Schemes: A Tale of Seven Pilot Markets

Abstract

This study evaluates the efficiency of China’s seven emission trading schemes (ETS) piloted in 2013. We evaluate seven pilots’ overall technical and scale efficiencies and temporal dynamics during 2014–2023. We use a bootstrap correction data envelopment analysis (bootstrap-DEA), which guarantees a more accurate efficiency estimation than the traditional DEA model. The results show that the average overall (pure technical) efficiency of the seven pilot markets increased from 0.612 (0.844) in 2014 to 0.898 (0.990) in 2023. Furthermore, we document that seven ETS pilots differ remarkably in efficiency and transaction price, whilst all have shortages. Specifically, the small-scale market transaction is the main constraint effect on the average scale efficiency of the ETS. This study provides concrete recommendations for policy makers to consummate institutional designs to improve ETS efficiency.

Keywords

• emission trading scheme (ETS)
• efficiency evaluation
• bootstrap-DEA
• pure technical efficiency
• scale efficiency
• China