Carbon permits allocation based on two-stage optimization for equity and efficiency: A case study within China

The initial allocation of carbon emission permits is always a challenge in aggregate cap due to the conflicts between equity and efficiency. In this article, we introduce a two-stage optimization framework to allocate permits in which the first stage is for equity by maximizing weighted information entropy and the second for efficiency by minimizing the average yearly energy consumption per GDP for all emitters. The allocation of carbon emission permits of 30 provinces within China is chosen as a case study to illustrate the application of this framework. The results show that the two-stage optimization method can provide a profound insight for emission abatement with a focus on balance of equity and efficiency for the policy-makers, especially in Non-Annex I countries.