A permit trading scheme for facilitating energy transition: A case study of coal capacity control in China

Restriction the production and consumption of fossil fuels is a necessary part in the energy transition. How to implement such restriction effectively is an issue that is of public interest to both academia and policy makers. Using production data of more than 1100 coal mines in China, we show that a capacity permit trading system originated from cap and trade practice could help the coal industry to save more than 30 percent of inputs and increase income by 26 percent. The results also demonstrate that the permit trading will lead to Pareto improvement for all participating provinces when compared with the capacity control administratively, and the accumulative welfare will increase as the trading zone is enlarged. The study suggests that adopting the permit trading schemes for capping policies is economically beneficial and politically feasible.