Abstract: China has proposed the carbon reduction targets for each province in its "12th Five-Year Plan". Meanwhile, several carbon emission trading pilots have begun. On this background, the cost saving effect of carbon markets in China achieving its reduction targets is studied in this paper. First, an inter-provincial emissions trading model is constructed. Then, three kinds of policy scenarios, including no carbon emission trading (NETS), the coverage of carbon market only contains six pilots (PETS), and the unified national carbon market (CETS) are designed. With simulation, some interesting results are found. First, by deducting the natural decline of carbon intensity, China’s CO₂ emissions need to be reduced by about 639 million tons to achieve the reduction targets, accounting for 6.65% of the total carbon emissions. In NETS, the total abatement cost is about 15.76 billion yuan, accounting for 0.04% of GDP. Second, in PETS, the total abatement cost is about 15.07 billion yuan, which suggests that a 4.42% saving is achieved compared to that in NETS. The CO₂ trading volume in PETS is about 22 million tons, accounting for 3.39% of total reduction, and the equilibrium carbon price is 70.55 yuan per ton CO₂.Third, in CETS, the total abatement cost is about 12.07 billion yuan, a 23.44% reduction compared with that in NETS. The CO₂ trading volume in PETS is about 121 million tons, accounting for a 18.98% share of total reduction, and the equilibrium carbon price is 38.17 yuan per CO₂. Finally, the cost saving effect of the carbon market on each involved province is different. Overall, the cost saving effect of eastern and western regions is more pronounced. Moreover, some western regions can obtain positive benefits by participating in the carbon markets.

Key words: inter-provincial carbon trading market, marginal abatement cost, cost saving effect, climate change, computable general equilibrium model