A carbon-intensity based carbon allowance allocation scheme among enterprises in Shenzhen

On October 29, 2011, a number of cities and provinces in China were chosen to host pilot locations for carbon emissions trading systems. Before a carbon trading market can be functional, carbon emission allowances need to be allocated. This makes the carbon emissions allowance allocation scheme crucially important as it goes a long way in deciding the effi ciency and fairness of the carbon cap-andtrade market. Although it has been proved that allocation by auction is the most effective way, Shenzhen city as one of the trading pilots will allocate carbon allowances free of charge at the initial stage. The European Union’s(EU) free allocation system, a product-based benchmark scheme for the manufacturing industry implement in 2013, is not feasible for Shenzhen due to the lack of data at a product level. Therefore the target of this paper is to explore a new allocation scheme with the data at a fi rm level other than the grandfathering scheme to fi ll the gap. In this paper, a carbon intensity based allocation scheme is developed by using the Boltzmann distribution and Gail- Shapley game. In the fi nal part of the report, fi rm level data from 2010 to 2011 of fi rms in Shenzhen, China are used to verify the effect and fi tness of the allocation scheme.