A conjoint analysis of corporate preferences for the sectoral crediting mechanism: a case study of Shanxi Province in China
Introduction
The need for a new market mechanism (NMM) was defined at the Durban Climate Change Conference in 2011, which is meant to scale up mitigation activities across broad segments of the economy; may operate at sectoral and/or project level; and aims to achieve a net decrease and/or avoidance of greenhouse gas emissions (UNFCCC, 2012). Since Durban, discussions on the NMM have not reached a consensus, which largely results from the fact that it may not be possible for Parties to give their final decision on the nature of the NMM in advance of more clarity emerging under the Durban Platform for Enhanced Action (ADP) (UNFCCC, 2014). However, the new agreement of the Paris Climate Change Conference in 2015 established a new international carbon market mechanism (‘Sustainable Development Mechanism’) and specified some other important principles in Article 6 (UNFCCC, 2015). Some Parties (e.g. Switzerland, Mexico, Liechtenstein, Canada, Morocco, South Korea) have expressed their interest in using international credits of the NMM to achieve part of their intended nationally determined contributions (INDC) in the 2015 new agreement (Carbon Market Watch, 2015). In addition to the discussions among Parties, researchers have been discussing scaling up the existing project-based mechanisms to the sectoral level or creating a new mechanism for many years (e.g. Baron et al., 2009; Schneider and Cames, 2009, Schneider et al., 2014). Some developing countries have planned to enter into a pilot phase (e.g. Morocco, Tunisia and Mexico), which will feed into the discussions on the NMM in international negotiations. Warnecke and Fekete (2013) and Höhne et al. (2015) point out that early actions positively affect the development of market-based mechanisms and have the potential to set standards, which would provide first-mover advantages in negotiations.
One of the key factors related to the current insufficiency of climate policy in China is the lack of experience in implementing market-based instruments, particularly carbon pricing policies in order to internalize carbon emissions externalities (Liu et al., 2011). As a representative carbon pricing approach, the NMM could enhance industrial carbon mitigation in a cost-efficient manner. In addition to the price effects, the World Bank (2015) has already identified the relevance of NMM activities to a wide range of climate policies and strategies, including emission trading systems (ETS) and carbon tax. If the NMM activities are conducted in current non-ETS sectors, it could create readiness for an easy transition into a national ETS or even into a carbon tax in China. Moreover, given the $370 billion shortfall in 2030 needed in order to achieve peak CO2 emissions and low carbon transformation (Amin et al., 2014), the key issue for China is to leverage low carbon investment which could be attained by piloting the NMM (NEFCO and Kfw, 2013).
The term NMM could be considered as an umbrella concept for a large-scale mechanism which enables the host country to develop tailor-made approaches at the national level to achieve a net mitigation decrease (Lehmann et al., 2014). Amongst different proposals from Parties and in the literature, a sectoral crediting mechanism (SCM) has been regarded as one of the important options (e.g. Schneider and Cames, 2009, Ecorys, 2012, Cai et al., 2012, Wehnert et al., 2013). The basis of an SCM is an approved sectoral non-binding emission target set for a certain sector. Tradable units will be issued ex-post to the host country government if emissions are subsequently reduced below the target. There will be no sanctions for the host country government if emissions are above the target due to the non-binding nature of the target. The achievement of this target largely depends on the mitigation actions of companies within the sector, which makes the acceptance of companies essential in determining the actual success of the SCM. In addition, the resistance from companies is identified as the biggest barrier to the implementation of this carbon pricing approach (Liu et al., 2015). While studies have been discussing the theoretical design of an SCM in developing countries for several years, very few studies have been conducted to clarify the opinions of companies so far.
Aiming to close this extant research gap, this paper uses the method of conjoint analysis to assess corporate preferences over the selected attributes of the SCM. Shanxi province was selected due to its position as a heavily industrialized region in China. The specific objectives of this study are to: (i) identify specific sets of attributes and attribute levels to characterize the SCM; (ii) assess the relative importance of different attributes in conditioning corporate preferences; (iii) evaluate corporate preferences towards policy alternatives of the SCM; (iv) develop policy implications for the design of the SCM.
The paper is organized as follows. Section 2 explains the theoretical basis of the conjoint analysis and the empirical model used in this survey. Section 3 describes the conjoint survey design, questionnaire development and data collection. Section 4 summarizes the results and conclusions, and policy implications are presented in Section 5.
Section snippets
Theoretical basis of the conjoint analysis
This study uses conjoint analysis to evaluate corporate preferences for an identified set of attributes of the SCM in China. The term ‘conjoint analysis’ refers to an overall approach and group of quantitative techniques that can be used to determine respondent preferences for attributes that make up a product or service, in which the total worth of a product is determined by the part-worths of its attributes (Sayadi et al., 2005). This approach stems from an important hypothesis that the
Attributes and attribute levels for the SCM
Twelve ‘possible elements’ of the NMM exist in Decision 1/CP. 18 that need to be taken into account by the Subsidiary Body for Scientific and Technological Advice (SBSTA) in the development of the NMM (UNFCCC, 2013a). Sterk et al. (2014) groups some of these elements together and streamlines them into five design elements, of which several have sub-elements. Some of the design elements and sub-elements require to be considered and defined by the Conference of the Parties (COP) at the
Descriptive statistics of corporate characteristics
The descriptive statistics for selected characteristics of companies are presented in Table 5. The samples show higher scores to the level of domestic energy prices, with a mean of 3.56. More than half of the surveyed companies perceive relatively high domestic energy price. The variable Export gets an average score of 1.40, implying that the samples feature a low level of internationalization. About 82% of the samples have an export rate of less than 10%. The variable Enman receives an average
Conclusions and policy implications
Using the method of conjoint analysis, this paper evaluates corporate preferences for policy alternatives of the SCM aiming at supporting its discussions and development. This paper demonstrates that the conjoint method is effective in providing an analytical framework to elicit corporate preferences over the attributes of the SCM and thus be useful for policy design.
The results indicate that ‘domestic policy instrument’, ‘the relationship with the CDM’ and ‘CBDR’ are the three important
Acknowledgments
The research was financially supported by the National Natural Science Foundation of China (no. 71273153, no. 71525007), the National Science and Technology Support Program Project (2013BAK15B01) and the Clean Development Mechanism (CDM) Fund of China (no. 2012036).
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