China’s Nationwide CO ₂ Emissions Trading System: A General Equilibrium Assessment

China’s CO ₂ emissions trading system, the world’s largest, aims to significantly reduce CO ₂ emissions. The system is a tradable performance standard (TPS), differing from cap and trade (C&T). We provide a dynamic general equilibrium assessment that uniquely considers institutional and fiscal features of China that affect policy costs and distributional impacts. Key findings: The TPS’s environmental benefits exceed its costs by a factor of five or more. Interactions with the fiscal system reduce or eliminate the TPS’s cost disadvantage relative to C&T. Introducing auctioning as a complementary source of allowance supply can reduce costs by 30 percent. (JEL D58, O13, P28, Q54, Q58)