Cost and effectiveness of emissions trading considering exchange rates based on an agent-based model analysis

Reducing emissions to improve air quality is the cornerstone of China's current environmental protection efforts. Emissions trading as a market measure is internationally acceptable because of its cost effectiveness. Traditional emissions trading research has usually ignored the effect of exchange rates and has adopted top-down methods to analyze how transactions proceed. These transactions may lead to environmental quality deterioration and cannot clearly reflect the transaction processes. Based on these two points, an agent-based model was used to study three regions' SO(2 )emissions trading processes in China, and the cost-effectiveness was analyzed by the three policy scenarios of Emissions Trading with the Exchange rate (ETE), Emissions Trading without the exchange rate (ET), and Command and Control regulations (C&C). The results show that the ETE system was more cost-effective than the ET and C&C systems. The average total SO2 emissions of all three scenarios satisfied the cap's requirement, but the average SO2 abatement cost in the ETE system can save 0.76 and 25.04 CNY/ton compared with the ET and C&C systems, respectively. Additionally, the ET system may lead to the "hot spots" issue, which means that during the process of emissions trading, the pollutant transaction may focus on some fixed regions (or firms) and cause their emissions to be higher. The ETE system can effectively avoid the problem of "hot spots" to a certain extent. Thus, it is suggested that the exchange rate should be considered in the future trading policy designs of China's pilot programs. (C) 2019 Elsevier Ltd. All rights reserved.