The impact of carbon quota allocation and low-carbon technology innovation on carbon market effectiveness: a system dynamics analysis

As the problems of "valuing compliance over trading" and quota over-allocation seriously affect the effectiveness of China's national carbon emission trading (CET) market, the quota auction mechanism will be introduced timely to solve these problems. Since implementing the quota auction means reduced free quotas, regulated enterprises are more motivated to pursue low-carbon technology innovation (L-CTI). On these grounds, by establishing a system dynamics model of the national CET market and designing seven scenarios for simulation analysis, this paper investigates the impact of quota auction and L-CTI on the emission reduction effectiveness and cost effectiveness of the national CET market. The results indicate that for the national CET market, introducing quota auction is conducive to decreasing the CET price and improving its liquidity and emission reduction effectiveness, which is one of the quota allocation mechanisms to improve the CET market effectiveness at present. However, the quota auction will increase the abatement cost and reduce the cost effectiveness. Therefore, to improve the institutional performance of China's CET system, it is necessary to conduct L-CTI to alleviate the increasing abatement cost caused by quota auction, and thus improve the emission reduction effectiveness and cost effectiveness of the national CET market.