The role of sectoral coverage in emission abatement costs: evidence from marginal cost savings

Abstract Sectoral coverage that plays a critical role in operationalizing the emission trading scheme (ETS), has gained substantive attention. Despite insightful views on sectoral from reduction potential or carbon leakage, previous studies overlook cost-effectiveness of ETS sense varying marginal contributions each sector to reducing abatement costs (EACs) (which is defined as cost savings, MCSs) remain underexplored. To fill this gap, paper proposes costs-oriented approach for (COASCO), which ranks sectors by estimating and comparing their MCSs. Taking China’s climate targets 2030 an example, we conduct empirical study implements COASCO method explore impacts EACs. Our analysis demonstrates that, while extension generally reduces EACs, small can already lead substantial decline national The results underpin Pareto principle covering six (i.e. Electricity production, Metallurgy, Transport storage, Petroleum gas, Nonmetal mining ) out 29 reduce EACs over 80% compared production only. Although may differences between improve market activation, extending probably gives rise number big traders, thenincreases risks manipulation. As result, those reach balance activation risks. By providing generalized systematic framework determining coverage, makes it possible minimize total associated with any coverages, thus assisting policymakers fulfilling latest ambitious goals reaching peaking neutrality 2060 cost-effective manner.