The Carbon Emission Liability Mechanism and the New Global Carbon Neutrality Solutions
Introduction
Under the coordination of the United Nations, the international community has been responding to the challenge of climate change for more than 30 years, however, the progress is still unsatisfactory. Recently, the UN Secretary-General Antonio Guterres declared that the era of global warming is over, whereas replaced by a new era of global boiling. Humanity is facing a climate crisis! Climate change will pose an existential threat to humanity more than pandemics and wars. Leading the project team with a long-term arduous and comprehensive research of law, sociology, economics, digitalization and sci-tech on global climate issues, Dr. Yang Baoming creatively proposed a brand new carbon emission liability mechanism (Carbon Emission Liability Mechanism, CELM) and the third path for global carbon neutrality—the "1+1" Global Carbon Neutral Solutions based on CELM, i.e., the constructing of "the Global Decarbonization System + The Global Green Energy Supply System”, so as to provide the international community with a more efficient, fairer, and lower-cost new path to global carbon neutrality, and furthermore bring hope for mankind to solve the climate problem completely.
1. Global Climate Issues and China’s Challenge
In March 2023, the Intergovernmental Panel on Climate Change (IPCC) released the Sixth Assessment Report (AR6) "Climate Change 2023", which showed that the global surface temperature in 2011-2020 was 1.1℃ higher than that in 1850-1900; anthropogenic climate change has affected every region of the world; according to the current decarbonization progress committed by governments, the global temperature rising in the 21st century will definitely exceed 1.5°C, and it will be difficult to control it within 2°C; There is still a large gap between the current progress and goals of global decarbonization. In order to control the global warming within 1.5°C, human society must take much more aggressive and rapid actions.
In 2022, global carbon emissions had increased by 0.9% to 36.8 Gt, of which China emitted about 12 Gt. To achieve the 3060 dual-carbon target, China’s current effort focuses on the allocation and trading of carbon quotas in key energy industries. The China ETS market covered 2,162 key fossil power units in the first compliance cycle, with an annual coverage of about 4.5 Gt of CO2 emissions, making it the largest carbon market in the world in terms of emissions coverage; As of Dec 31, 2022, the cumulative transaction volume of carbon emission allocation in China was 230 Mt, with a turnover of 10.475 billion yuan and an average transaction price of 45.61 yuan/ton.
China’s current decarbonization system faces many challenges, such as how to establish a complete, accurate and real-time carbon footprint database, how to choose fairer and more effective carbon pricing mechanisms, how to reform and upgrade the carbon market, how to efficiently raise green transformation funds, as well as how to cut back carbon negative effects of decarbonization on macroeconomics and social welfare, etc.
The total global CO2 emission reached 36.8 Gt in 2022, while the amount in China is 12 Gt, accounting for almost 1/3 of the global emission.
CO2 emission per capita in China is 8.4 tons in 2021, above the level of advanced economies.
The emission intensity of GDP declined in China, falling to 0.45 tons of CO2 per USD 1000 of GDP, but still ranking the highest emissions intensity of GDP among major economies.
2. The Essence of the Climate Issue and the Seven Consensus
The economic essence of the global climate problem is a puzzle of cross-temporal externalities and large-scale complex public goods. There are many levels and huge volumes of bodies in the interest game of climate issues, including various organizations and individuals from the international community. Under this circumstance, it is very difficult to find a fair and efficient equilibrium solution. At present, the Carbon Tax and the ETS-Emission Trading System based on allocation as two carbon pricing mechanisms are generally adopted by various countries, however, their practice cannot bear the heavy responsibility to realize the temperature control goal of 1.5℃ proposed by the IPCC from the perspective of theoretical and empirical results. Both the global climate crisis in 2022 and the sixth assessment report of the IPCC indicate that it is urgent to find the third more effective pathway.
To solve the climate problem veritably and achieve the IPCC's temperature control goals substantially, the international community must reach the following seven consensus points.
A Community with the Shared Future for Mankind
Human beings share one single common earth；All countries and all people need to work together to face climate change.
Carbon Equality
Carbon emission rights are equal to everyone, and cannot be used to limit the development of some people. Every tonnage of carbon emission should be paid by a reasonable cost.
Consumers Liable for Emissions
Production activity and carbon emissions come only when there is consumption demand, therefore, consumers should bear products’ carbon cost of both the front-end and manufacture process emissions.
Right to Know and Right to Choose
Credible carbon footprints of the whole society shall be clarified through digital technology to avoid failure of trade information and price signal so as to ensure market efficiency.
Developed Countries and People with High Carbon Emission Should be Held Accountable
Developed countries should take responsibility for historical carbon emissions, whilst high-carbon emitters should pay an adequately high price.
Real Negative Carbon is a Standard Commodity
One ton of "Real Negative Carbon" means removing or absorbing one ton of carbon dioxide from the air. It is a standard commodity and can be freely traded around the world.
Fully Leverage the Market Mechanism
The boundary between the government and the market shall be set as efficient and fair during their interaction so as to fully empower of the market mechanism.
3. New Carbon Liability Mechanism
Given the goal constraints proposed by the IPCC (to achieve global net-zero carbon emissions around 2050), this report proposes a Carbon Emission Liability Mechanism (CELM) and an integrated carbon pricing scheme through comprehensive interdisciplinary research based on the seven major consensuses on global climate issues and the starting point of one community of shared future for mankind, and furthermore designs out the third global carbon-neutral pathway to address climate change: CELM-based "global decarbonization system + global green energy supply system" , i.e., 1+1 global Carbon neutral solutions to achieve the optimal path to global carbon neutrality.
3.1 Two assumptions
Assumption 1: Governments of all countries must achieve the carbon neutrality goals committed to the international community.
Assumption 2: Governments of all countries are committed to establishing a fair and efficient decarbonization policy system.
3.2 Three basic principles
Based on the following three principles, a relatively consistent decarbonization governance system can be established across the international community.
Principle 1: Consumers bear the cost of carbon emissions, while the back-end of industrial chain is responsible for the total front-end carbon emissions.
Final-end consumers shall pay for the carbon emission liability(CEL) embodied within products. Any organization within the industry chain is responsible for the total carbon emissions of its own products, i.e., it is responsible for the selection of its suppliers.
Principle 2: All organizations should balance the input and output of carbon flow bills, and be responsible for offsetting any CEL stock.
A carbon bill management system (CTMS, Carbon Ticket Management System) can be established to record the circulation of the carbon liability content of every commodity traded in the whole society. For any organization, the carbon ticket issued by the supplier is called an output ticket, while the carbon ticket received by the purchaser is called an input ticket.
Therefore, the big data on the carbon footprint of all goods and services in society can be generated. Each organization shall conduct its final carbon ticket settlement of purchase and sale items on a quarterly basis. Legislation may be needed to define:
The amount of carbon emission liability stock by one organization = total amount of carbon ticket input – total amount of carbon ticket output
Negative stock quantity can be sold in carbon trading market to obtain some income. Positive stock should be offset through purchasing "negative carbon" quantity so as to bear the cost. In this way, organizations with carbon emission intensity higher than the industry average level had to expand their corresponding carbon emission costs, and those with lower carbon emission intensity will immediately receive low-carbon emission rewards, thereby all organizations in the industrial chain will be driven dramatically to decarbonization in two directions.
Principle 3: "Negative carbon", as emission offset products, will be transacted in the carbon trading market, while the price of "negative carbon" is determined by the market equilibrium.
Negative Carbon Supplier: Produced by forestry, other commercial organizations and CCUS carbon sink organizations, real negative carbon will be supplied to the carbon market through verification by the state-authorized institutions. As the Controller of the carbon source, the state government will input an equal amount of owing negative carbon to the carbon market. Organizations whose carbon ticket output are greater than their input can also sell negative stock in the carbon market.
Negative Carbon Demand Side: Different types of carbon negative products can be purchased from the carbon market to meet various needs of business, production, export and investment needs raised from various organizations: e.g., entities to offset the stock of carbon emission liabilities, advanced organizations willing to achieve carbon neutrality beforehand, export enterprises to deal with carbon tariffs, as well as carbon asset investment institutions and individuals.
4. Global Carbon Neutral Solution Based on CELM
4.1 Global Carbon Neutral Solutions
Due to the short of appropriate guidance from basic economic theory, the international community has been exploring the two paths of carbon emission allocation and carbon taxes for decades, nevertheless, the progress is obtuse with the huge gap against IPCC 1.5-degree control target. Neutral solutions still lack support by an effective roadmap. Global decarbonization faces respective challenges such as multi-level emission rights allocation schemes, carbon leakage and tariffs, neutral investment funding sources, and the inability to unify multiple decarbonization systems.
CELM theory can provide a solid basis of economic theory and a feasible third pathway to achieve the global carbon neutrality.
This report proposes a CELM-based "1+1" global neutral solution: "global decarbonization system + global green energy supply system". The "1+1" system will become the key guarantee to achieve global carbon neutrality.
CELM-based global neutral solutions consist of two major systems and four sub systems.
The two major systems are: the global decarbonization system and the global green energy supply system.
The Global Decarbonization System comprises of two subsystems: Carbon Ticket Management System (CTMS) and Negative Carbon Trading Market (NCTM). Among them, the Carbon Ticket Management System provides credible carbon footprint data for each organization and each product in the whole society, and determines the emission liability of each organization; the Negative Carbon Market furnishes organizations with carbon liability offsets; The government can obtain carbon neutral funds, meanwhile carbon sink organizations and lower-emission organizations can gain income. Thus, the real negative carbon as standard products provide a basis for the development of decarbonization, green energy and transition bills.
The Global Green Energy Supply System also includes two subsystems: Global Energy Internet (GEI) and International Electricity Trading Market (IETM). Among them, the Global Energy Internet transports the green power from the green energy bases to the world via the UHV transmission lines with extremely low loss through the intelligent configuration of the global smart grid, hence reduces energy storage cost and improves the utilization of green power on a global scale efficiency; The international power trading market is a free open bidding transaction for pure green power on a global scale and it is market-oriented, efficient in allocation of resources which can expands the scale. The two major systems that constitute CELM's global carbon neutral solution, same as the two aspects of carbon neutrality, one is designed to accelerate the decarbonization of the whole society through the "pure soft" mechanism design; the other is to use the "hard bone" infrastructure related to the energy Internet, accelerate the efficient supply of green energy on a global scale, and also the replacement of fossil energy.
Compared with other carbon pricing instruments in the world, CELM-based global neutral solutions make full use of market-oriented mechanisms and digital intelligence to operate fairly and efficiently. The overall social cost is lower, furthermore, the requirements for the government's governance level and operating cost are also modest. It is a fairer and more efficient global neutral solution.
4.2 Global Decarbonization System
4.2.1 Implementation Plan of the Global Decarbonization System
Overall Implementation Plan
Legislation based on the CELM
Relevant laws, regulations and operating mechanisms shall be promulgated to clarify the carbon emission liability system and ensure its operation.
The "1+1" decarbonization system based on CELM to be established: Carbon Ticket Management System + Negative Carbon Trading Market
Carbon Ticket Management System. In order to facilitate the recording and decomposition of emission liabilities of all organizations and consumers in the whole society, a certificate for registering the emission liability amount of each product and service is designed - "Carbon Liability Ticket", referred to as "Carbon Ticket", also known as "Red Ticket", which records in detail the circulation value (carbon footprint) of the emission liability amount for each market transaction. At the same time, a national-level carbon ticket data management system will be established, which can also be called as a national "Golden Carbon Program", and realize digital full-data management of carbon footprints. The transfer of carbon emission liabilities of every transaction in the whole society will be recorded through input tickets and sales tickets in this system.
Negative Carbon Trading Market. Government, carbon sink organizations and individuals who hold "Negative Carbon" can provide any amount of "Negative Carbon" into the carbon market. The government mainly provides certain amount of "Owing Negative Carbon", whereas carbon sink organizations mainly provide "Real Negative Carbon". Organizations with negative carbon stocks can sell negative carbon in the market to obtain income, and organizations with emission liability stocks shall purchase negative carbon from the market to offset their emission stocks.
Endorsed Carbon Source Quantity
The competent government department approves carbon emission indicators per unit and total products output to carbon source organizations (coal mines, oil fields, natural gas companies, etc.), and issues the total amount as a carbon source output ticket to these organizations and then inputs it into the CTMS system. Carbon source coverage will be gradually refined from large to small entities.
Self-operation of the Carbon Ticket System
All organizations in the whole society shall follow the principle of free trade, while the amount of emission liability will be freely circulated through the purchase and sale of carbon tickets according to the actual trade situation. The carbon ticket system will operate smoothly by itself with no needs by governmental interference and supervision at every transaction link.
Terminal Sales Organizations May Collect the Carbon Fee on Behalf of Their Customers
Organizations that sell products to final consumers may collect carbon fees on their behalf. The carbon fee received by these organization is used to purchase negative carbon in the carbon market to offset the emission liability stock.
All Social Organizations Shall Conduct Quarterly Settlement and Payment of Carbon Emission Liability Stocks
Organizations with carbon emission liability stocks must purchase negative carbon from the market for offsetting. For each organization, keeping balance of the total amount of purchase and sales items demonstrates that its emission intensity is basically consistent with the average level of the entire industry, and there is usually not directly to bear the cost of carbon emission. The total amount of output bills is greater than that of input bills means that the emission intensity is lower than the industry average level. Negative carbon can be sold in the carbon market to obtain income (low carbon emission reward).
Organizations can reduce decarbonization costs through carbon assets management: buying negative carbon assets for preservation when the price is favorable, or offsetting them in advance.
Establishing Household Carbon Accounts with Price in-Tier so as to Promote Policy Progressivity
Household carbon accounts can be established through connecting CTMS with systems of census and payment. The government can allocate low-price carbon allowances according to the members of households, and define the carbon price in different levels. The more resources and energy consumed, the higher the carbon price, hence to promote decarbonization in the whole society, excite a new consumption concept, and improve the mechanism of the carbon fee progressivity as well as frame an important three-time distribution mechanism.
Response to Export Carbon Tariffs
Domestic export companies shall purchase "International Negative Carbon" in the domestic carbon market for carbon offsets so as to realize zero-carbon products to export and also emission costs assumed yet to be recognized internationally. At the same time, credible carbon footprint data can be provided through the CTMS system. This will avoid carbon tariffs imposed by the EU CBAM or the US carbon tariff border mechanism.
This program can be further promoted to all countries so as to achieve global carbon neutrality more efficiently.
Carbon Source Organizations and Carbon Source Management
As long as the government manages the carbon source organization and its quantity well, the CTMS system will ensure carbon footprint data of all products in the whole society are accurate, real-time and complete, thus a digital carbon footprint of the whole society can be established simultaneously. After the accurate carbon source value is entered in the carbon ticket system, the subsequent carbon footprint of the whole society can enable its automatic operation and management.
The amount of carbon sales that the government assigned to carbon source organizations is: total carbon source = energy output times carbon content per unit of energy. The self-reported amount of primary energy output can be checked with the value-added tax system, which is easier to verify accurately. The carbon content of a unit energy product is relatively constant and can be tested and determined by a government-certified testing agency. Carbon emissions from the energy industry account for more than 80% of the country's total. The other production input of carbon source verification methods can be promulgated for other carbon source sectors, such as cement, steel, transportation, petrochemical etc., according to their respective characteristics.
Carbon Sink Organizations and Carbon Sink Management
An international advanced carbon sink (negative carbon) certification system shall be built to encourage directly carbon sink organizations making carbon absorption contributions through the negative carbon market, and stimulate the R&D and application of decarbonization technologies.
It is recommended that the CCER certification system be completely terminated in the international community, and CCER transactions should not be restarted again in China. After the cost of carbon emissions is fully internalized, and based on fair competition and policy costs, the certified decarbonizations of low-carbon projects should not be the targets of direct incentives.
The products of carbon sink enterprises are "real negative carbon" and should be verified comprehensively, accurately and in a timely manner. The core of carbon sink management is "real negative carbon" certification, and it should be oriented towards all stock assets. At the same time, carbon sink verification must adhere to the following two principles:
The Principle of Additionality: Some natural resources, such as the carbon sequestration by oceans and the loess plateau, should not be certified as carbon sinks if they do not require additional investment in overseeing and maintenance. These carbon sinks belong to the country’s income but not to any organization. Sellable carbon sinks must correspond to input and output efforts in order to improve the efficiency of decarbonization policies.
Incremental Principle: Only the amount of new carbon sinks added each year is verified. The existing carbon sequestration stock in the natural ecosystem is a national resource and is no longer owned by an economic organization. The CELM-based carbon sink certification system is simpler and easier than the CCER system, with less difficulty in certification and a high degree of objectivity and standardization.
An internationally recognized "real negative carbon" carbon sink certification system shall be established as soon as possible, while certified "real negative carbon" products can be sold to the international market.
4.2.4 National Carbon Ticket Management System (CTMS)
A large carbon footprint database of the whole society can be established through CTMS with high efficiency and low cost, meanwhile the end-to-end carbon footprint data of each organization and each product can be recorded completely. The carbon footprint database that collects fineness to specific materials, products, and services can form a highly-precise emission factor bank for various industries. The captured data, which is accurate, real-time and complete, can be used for exact formulation and implementation of various policy, decarbonization management tools as well as potent digital support for diverse industries. The CTMS platform covering the whole society is a national-level system, which can be called as "Golden Carbon Program", similar to China's "Golden Tax Project", and will become one of the most important infrastructures in the carbon neutralization process of all countries.
The functions of the CTMS system include: social organizations can process the record circulation of carbon ticket purchase and sale items, carry out final quarterly carbon stock settlement and payment, carbon sink management, carbon asset management, etc. The government can monitor purchase and sales carbon bill of any account, process carbon source data input and summary analysis, check and analysis final settlement, form emission factor databases for various industries, as well as practice anti-carbon bill fraud and AI decision support as governmental decarbonization command center with paperless operation.
4.2.3 Negative Carbon Market
Top-Level Design
Core functions of the carbon market based on CELM are: first, to provide all organizations with emission liability stock offset products - "Negative carbon", to help social organizations with emission liability stock to complete their final settlement; second, to bridge "Carbon Emission " over with "Carbon Sink", emission organizations purchase negative carbon to offset emission liability stocks, carbon sink organizations and organizations with negative carbon stock could sell negative carbon to obtain income, hence two-way incentives will be realized; the third is to help green and transformational finance development, providing source channels for up to tens of billions green investment.
The trading target of the CELM carbon market is "negative carbon", not those emission allocation or CCER products shown in the current prevailing carbon market. Absorbing one ton of carbon dioxide from the air in any corner of the earth can be value equally in uniform standards, and it also can be adopted as a sustainable asset. "Negative carbon" points to the ultimate goal of carbon neutrality, and it is easy to form a unified domestic carbon market and expanded into an international carbon market, driving decarbonization more directly and effectively.
One Unified Market
A national-level unified negative carbon market shall be established and developed towards into an international carbon market. The pilot carbon market for emission quota rights in various provinces and cities should be cancelled, while there are no needs to establish independently a CCER market. These two categories are of little value but only disperse resources and cause confusion in the market.
Two Targets
Real negative carbon (Real Negative CO2): Real negative carbon is the CO2 equivalent actually absorbed from the air with cost paid by the carbon sink organization and output into the carbon market. Organizations and households which lead in green vision and expect to achieve carbon neutrality in the frontmost are demanders of real negative carbon.
Owing Negative CO2: It is the "negative carbon" that the government directly inputs into the carbon market to satisfy the needs from whole society for carbon offsets, and does not actually absorb CO2 from the air. The price is lower than that of real negative carbon, but bearing certain carbon emission liabilities and costs. The legal basis for the government to sell owing carbon to the carbon market is that the government is the frontmost issuer of carbon source sales, the most important organizer of social decarbonization, and the carrier of the liability for emission pollution mitigation. The owing negative carbon price gradually approaches the real negative carbon price from low to high, and finally merges into one, at which point carbon neutrality is achieved. The owing negative carbon is input into the carbon market by the government, and the income is instilled into the government's "National Carbon Neutral Fund". The amount of "owing negative carbon" that the government enters into the carbon market every year is equal to the total amount of carbon sources minus the total amount of "real negative carbon" exported by carbon sink enterprises. When a large amount of investment funds enters the carbon market, the government can increase the input of "owing negative carbon" to meet investment needs, obtain more decarbonization funds, and expand the "National Carbon Neutral Fund".
International Negative Carbon (International Negative CO2): In order to deal with the issue of international carbon tariffs, there will also be a transitional transaction variant - "International Negative Carbon", that is, a phased carbon price mutually recognized by countries in trade, whose price is lower than the real negative carbon and higher than the owing negative carbon. The international negative carbon phased price is determined through a multilateral coordination mechanism among countries. Export products can be offset by purchasing "international negative carbon" in-country to avoid carbon tariffs.
Real Negative Carbon
The CO2 equivalent absorbed from the air and paid the actual processing cost is exported to the carbon market by the carbon sink organization.
Prices are combined costs of CCUS.
Owing Negative Carbon
It is "negative carbon" that is directly inputs into the carbon market by the government to meet the whole society demands for carbon offsets without actually absorbing CO2 from the air.
Its price is controlled by the government in stages, which is lower than the real negative carbon, but bears a certain liability for carbon emissions.
International Negative Carbon
A variant of the transitional transaction in response to the international carbon tariff issue. That is, a negative carbon product with a phased carbon price mutually recognized by trade between countries.
The price is determined through negotiation between countries, which is lower than that of real negative carbon and higher than that owing negative carbon.
Principles and Pricing Mechanisms of Owing-Negative Carbon
The initial stage of the "Owing-Negative Carbon " price is much lower than that of the "real negative carbon". In the trial operation period zero price could even be used, and later moved closer to the "real negative carbon" price year by year.
The function of the owing negative carbon is that the government gradually inputs the cost of carbon emissions into the economic system: first, the carbon emission liability is input into the overall economy and the whole society, and finally passed through manufacture and trade down to consumers. Second, funds for decarbonization can be obtained, through selling the owing negative carbon which can be invested into decarbonization projects, technic innovation and upgrading.
Trends of Three Negative Carbon Price
With the development of the carbon sink industry, the price of real negative carbon has gradually decreased.
When the negative carbon market is first launched, the price of real negative carbon will be too high, far exceeding the carbon cost bearing capacity of one country in its neutrality. The government can export owning negative carbon, and gear the price from a lower point. In order to improve the process of carbon neutrality, the price of owing negative carbon can be raised gradually.
The international negative carbon price will be set between those of the real negative carbon and the owning negative carbon, as the outcome of negotiations between countries.
With the increase of the owing negative carbon price and the gradual decline of the real negative carbon price, the three negative carbon prices will get closer and gradually converge together. At that time, only the real negative carbon trading products are left. Net zero emissions, that is, carbon neutrality will be achieved.
Three Tiers of Market
The primary market is mainly an oligopoly market dominated by the government.
The government inputs "Owing-Negative Carbon" and "International Negative Carbon" into the carbon market through legislation, while carbon sink organizations input "Real Negative Carbon" into the market, and a primary market can be formed.
The secondary market is a large publicly traded market.
All investors, supply and demand sides enter the market, will trade according to the rules. As the largest product provider (oligopoly), the government holds substantial pricing power, and can effectively control market prices. Carbon assets could become an important type of asset for investment institutions and ordinary people, and will partially replace the housing market as the next RMB reservoir.
The tertiary market is the international trading carbon market.
The CELM negative carbon market is a precise and standard financial product. There is great potential in the development of international carbon market. China should induce forward aggressively to forge its leading edge.
Four Trading Entities
Because of its huge volume, standardized trading product and governable fluctuations, the CELM carbon market can be opened to government departments, all emission organizations, carbon sink organizations and investors in the early stage of operation, and all institutional and individual investors can be engaged.
Main Trading Rules
The first order is price priority.
The second order is investors, carbon sink organizations and enterprises first, then the government. The government plays the last role.
The government is the ultimate owner of carbon sources and the ultimate liability bearer for carbon neutrality. It is also the absolute largest exporter of "owing carbon" to the carbon market. Mechanisms shall be effectuated to motivate all organizations and individuals to reduce emissions, and all investors prostrate to invest in decarbonization.
The third order is "Real Negative Carbon" first and then "Owing-Negative Carbon".
Real negative carbon funds flow to carbon sink organizations, while owing negative carbon funds stream to the government. Real negative carbon yields actual effects for decarbonization and should be given priority.
The fourth order is the one with the shortest effective period first, and then the long-term effective one.
As a measure to protect investors' interests, this approach can enhance investors' enthusiasm.
The fifth order is individual investors first, followed by institutional investors.
Giving priority to the interests of individual investors and encourages them, the policy will enable to raise the awareness of decarbonization among the whole people and activate the carbon market.
4.3 Global Green Energy Supply System
While establishing a decarbonization system, it is necessary to accelerate the development of zero-carbon green energy and replacement of fossil energy. Like the two sides of carbon neutrality, if both move towards each other, then the global carbon neutrality will be realized speedily.
The construction of the global green energy supply system mainly relies on three major energy strategies: breaking through the bottleneck of zero-carbon green energy development, building a global intelligent and efficient low-loss T&D power network, establishing a global electricity trading system to achieve optimal configurations in the range. This will help us establish two major green energy supply systems of "Global Energy Internet + International Power Trading Market", effectively build a green energy supply system on a global scale and accelerate the replacement of fossil energy.
Global Energy Internet(GEI)
The global energy internet is the second most important world internet after the world information internet.
GEI is the key hardware infrastructure for global carbon neutrality with an essence as the huge global power interconnection system of "Smart Grid + UHV Transmission + Clean Energy", which includes three parts:
The first part: rational distribution of green energy (photovoltaic, wind power, etc.) bases around the world. The world can be divided into three or four 8-6 hours small time zone areas, which has enough photovoltaic and wind power production capacity to supply global electricity demand at the same time.
Part II: globally interconnected UHV transmission grid. It is responsible for transporting the electricity from green power plants to every corner of the world, leaving no dead corner on a global scale. This requires the establishment of international technical standards and huge investments. However, compared to the huge spending in energy storage systems, it is still very cost-effective.
Part III: Smart Grid System. Combined with the global UHV power grid, according to the transaction results of the international power trading market, the global automatic and intelligent distribution of power is carried out around the world.
These three physical hardware systems constitute a perfect world energy network and become the key infrastructure to achieve global carbon neutrality.
4.3.2 International electricity trading market
"Negative Carbon Market + International Power Trading Market" will furnish a strong source of funds for the construction of a huge green power system, among which the international power trading market is a continuous source of funds particularly.
The international power trading market is composed of supply, demand, investment and regulatory parties. The smart market system intelligently and efficiently matches the power demand and supply at each point in time to realize spot and forward product transactions. Under the support of the Global Energy Interconnection system, international power energy transactions have a very large room for growth. It not only supports the growth of green energy, but also provides sufficient power for the development of backward areas.
The electricity that enters the market is "zero-carbon" one that has been offset by "international negative carbon", so that the electricity bidding in various countries is at a relatively uniform and fair level.
An advanced international power trading market can bring market makers to trade, adjust the power futures market, increase capital supply, reduce gap between real-time supply and demand, maintain asset value as well as avoid risks.
A market system that braces the zero-carbon green energy supply is crucial, which can provide huge construction funds, converge long-term investment, gather global green energy consumption and investment demand, furthermore establish a large and efficient global green energy production, scheduling, consumption, investment and operation system finally.
A series of unified technical standards, transaction standards and operational management regulations with legal effects across the international community shall be established to build a global green energy supply system.
4.4 Integrated Carbon Pricing: A Carbon Pricing Strategy Integrated with both Neutrality Progress and Macroeconomic Effects
The carbon pricing scheme based on CELM integrates the advantages of carbon tax and carbon emission allocation trading market (ETS), whereas avoids the defects of both.
Based on the carbon price and historical macro-operation data, the government can substantiate the dynamic synergy of demands between the macroeconomic development and the carbon neutral process through the "negative carbon" price regulation, and actualize the carbon neutral process goal and the optimal allocation of market resources. CELM's integrated carbon pricing scheme is highly unified, efficient and low-cost. The government has complete overall control, similar to the adjustment mechanism of national currency interest rate.
Real-time Carbon Pricing Adjustment Mechanism
The carbon price is capped at the cost of CCUS, and is adjusted appropriately by the government according to the speed of decarbonization and green energy replacement respectively.
If the GDP declines significantly, the carbon price can be appropriately lowered; on the contrary, if the GDP growth is ideal but the emission control progress is not in a satisfactory manner, the carbon price can be properly raised.
5 Analysis of Macro Effects of CELM System Implementation
The global carbon neutral pathway based on CELM is by far the best routine. It can not only achieve carbon neutrality faster, but also minimize the negative effects on the macro economy, enhance the positive impact of low-carbon transformation, as well as finally achieve a larger positive effect on the whole, which will contribute to global carbon neutrality and bring about a fundamental change.
Identified the Greatest Common Ground of Converging Interests and the Best Path for The International Community to Achieve Global Carbon Neutrality
On the climate issue, the international community will move from a game of interests onto a road of win-win cooperation.
Opportunity in Horizon to Achieve Carbon Neutrality 15 Years in Advance with the Correct Guidance to Design Decarbonization Mechanisms by CELM, the New Basic Theory of Climate Economy
The current governance system of decarbonization policy is very complicated and inefficient, with too many repetitions, missing laps, contradictions, and high administrative costs. The three major rules of CELM theory greatly simplify the framework of the entire decarbonization policy system, greatly reduce regulatory costs, and improve fairness and efficiency.
Mitigating Impacts on the Macro Economy and Less Losses of Social Welfare by Decarbonization whereas Increasing Positive Effects on the Macro Economy
The decarbonization system based on CELM cleverly disperses the overall emission cost to the whole industry chain where all organizations and consumers take responsibility together, which mitigates the macroeconomic pressure and drives the whole society to cut emission unitedly. Low-carbon enterprises and carbon sink enterprises can obtain positive incentives from the negative carbon market in real time. Spendings of carbon fee income by the government to invest in green economic transformation will increase both employment opportunities and environmental benefits. Meanwhile, adjustments of the household carbon account mechanism can enhance the progressiveness of policies and improve social redistribution.
Under the original decarbonization system, the pressure of decarbonization is concentrated in the thermal power industry, which has a huge negative impact on the macroeconomic industry chain; under the CELM system, the pressure of decarbonization is subdivided into sub-categories of certain types of products, while low-quality high-carbon production capacity will gradually eliminated and replaced by enterprises with low emission intensity and higher efficiency, therefore, it will improve the production chain and become an important snatching point for high-quality development.
Solved Well the Conflicts of Carbon Border Adjustment Mechanism in International Trade
Credible carbon footprint data can be furnished through the carbon ticket management system (CTMS), while carbon emissions in products can be offset through "international negative carbon". Therefore, disputes over carbon tariffs in international trade can be avoided.
Establishing a Good Conversion Mechanism for Green Energy Transformation
A better buffer mechanism can be established for coal power companies, which reduces the impact on the macroeconomy, prolongs the life cycle of coal power plants, and reduces investment losses in the coal power industry.
Collecting Green Transition Funds of the International Community, Especially for Those Developing Countries
The CELM program internalizes the cost of carbon emissions within products, while the government's ability to raise funds for green transformation has been significantly improved through the carbon-negative market. Furthermore, via the consumer liability mechanism, high-consumption countries and groups will pay a greater cost of carbon emissions, which significantly improves the fairness among countries to reduce emissions, and also enable developing countries to obtain more resources. At the same time, green investment and low-carbon emissions can both gain benefits from the carbon market, which creates a source of capital for green transformation.
Improving International Security and Relations Dramatically
The climate issue has been the biggest game of the international community in the past 30 years, and it is still trapped in the quagmire of zero-sum or negative-sum games. Once CELM theory and solutions are recognized and implemented by the international community, it will promote global solidarity and cooperation more rapidly. The formation of its system will allow the international community to capture the win-win fruits of cooperation and minimize the threat of division and war.
6. New Principles of Public Goods
Originated from the idea of public goods governance on carbon emission with robust universality，the CELM theory can be abstracted，upgraded, and then promoted to be a general public goods governance theory, which is suitable for cross-temporal externalities such as greenhouse gases, and other ultra-large-scale complex public goods.
New Principles for Public Goods (PPG): If the external liabilities of public goods can be clarified and its amount can be measured through certain methods or confirmed through transaction negotiations, and meanwhile there are corresponding offsets, then a certain liability mechanism can be designed and a liability-offsets trading market can be constructed, in order to improve the efficiency of social resource allocation and thus achieve Pareto improvement.
