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BRI and Carbon Pricing Mechanism

Faced with the unprecedented urgency of global climate change, the international community has been actively cooperating to address the climate change issue, and the carbon pricing mechanism, such as the carbon market, is developing rapidly. Therefore, it is relevant to study the significance and feasibility of establishing a carbon market in the major countries and regions of BRI (Southeast Asia, Russia, South Korea, Middle East, Africa, South Africa).

First of all, this research conducted a detailed investigation of the current development in China and the international carbon markets from different aspects likes socio-economic development, emission status, energy conservation and emission reduction policies, and carbon pricing mechanisms of major countries and regions of BRI.

Secondly, a qualitative analysis was conducted to study the feasibility of establishing carbon markets in major countries and regions of BRI. The World Bank has established the FASTER principle, namely the six principles required to establish a successful carbon pricing mechanism: fairness, consistency of policies and objectives, stability and predictability, transparency, efficiency and cost-effectiveness, and reliability and environmental integrity. This study selects six indicators for the analysis: the average value of the public sectors and institution clusters, the ease of doing business index, and the degree of corporate information disclosure index issued by the World Bank, the rule of law index issued by the "Global Justice Project", whether the policy documents in these countries mention the domestic and international carbon markets, and corporate participation released by the "Global Environmental Information Research Center". The results show that China, South Korea, the European Union, and the United States have the most developed foundation for establishing domestic carbon markets; Russia, Southeast Asia, and South Africa have relatively well-established conditions for carbon markets while the Middle East and Africa are less feasible to establish domestic carbon markets.

Finally, this study conducts a quantitative analysis of the impact of the implementation carbon markets in major countries and regions of BRI. With the 2020 to 2035 set as the target year, this study designs a reference scenario, a non-linked carbon market scenario, a BRI major country linkage carbon market scenario, and a BRI major countries linkage with Europe and the United States carbon market scenario. With these four scenarios, this study utilizes the China-Global energy-economic model to conduct a simulation analysis. Carbon prices are utilized to reflect the marginal emission reduction costs of each country, there is difference between each country’s carbon emission reduction costs when meeting the NDC emission reduction commitment target. Linkage through regional carbon markets will help reduce overall global emission reduction costs but will have an asymmetrical impact on countries’ GDP, residents’ welfare, and industrial development. Establishing carbon market linkages is also conducive to reducing the overall emission reduction costs of BRI countries on a larger scale.

This analysis recommends: 1) China’s green and low-carbon transition urgently needs acceleration of the construction of a unified national carbon market; 2) BRI countries need to join hands with China on the path of low-carbon development and take the lead in establishing a carbon market in the power sector; 3) China need to be prudent, tighten the investment and strengthen the environmental management in coal power projects in BRI regions; 4) Establishing carbon market funds to support the establishment of carbon markets in BRI countries; 5) Promote the BRI countries' broad and in-depth cooperation on carbon market, and accelerate the construction of disciplines and training of talents related to climate change and carbon markets; 6) After the operation of China's national carbon market is relatively mature, gradually explore different types of BRI carbon market linkage and cooperation methods.

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