China’s water pollution is severe and has a negative impact on its residents. Establishing an emissions trading mechanism will be helpful for reducing the pollution. However, the government in China controls the emission rights market. The “GDP Only” preference blocks equitable rules to address the externalities. To modify this distortion, we develop a multi-objective primary distribution model that optimizes economic efficiency, environmental contribution, and fairness. In addition, the geographical location of a company and the industry differential are two key factors that would affect the local government’s decision. According to the simulation results using data from Tai Lake in China, this model can effectively help to meet the political expectation that large-scale manufacturers with poor technology can take the initiative to reduce emissions through emission-rights distribution.
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