A model for interprovincial air pollution control based on futures prices

Area of Science:

• Environmental Economics
• Climate Policy
• Futures Markets

Background:

• China faces significant interprovincial air pollution challenges.
• Existing pollution control mechanisms require enhanced cooperation and cost-efficiency.

Purpose of the Study:

• To develop and evaluate an interprovincial air pollution control model utilizing tradable emission rights futures.
• To determine the economic viability and cooperative benefits of such a market-based approach.

Main Methods:

• Constructed an interprovincial air pollution control model incorporating futures pricing.
• Calculated emission rights spot prices using a classic futures pricing formula.
• Applied the Shapley value method for rational benefit allocation and optimal decision-making.

Main Results:

• Identified five distinct interprovincial trading markets for emission rights.
• Demonstrated a reduction in the overall cost of SO2 pollution control.
• Showcased that each province can achieve lower air pollution reduction costs through cooperation.

Conclusions:

• The futures-based model enhances regional cooperation for air pollution control in China.
• Implementing this model offers a cost-effective, win-win solution for provinces.
• The approach promotes efficient SO2 emission reduction and control.