Efficiency vs. Equity as China’s National Carbon Market Meets Provincial Electricity Markets

Prof. Dr. Feng Song

Renmin University of China

Research interests

Energy economics, renewable energy development, power sector reform

Time: 15:30-17:30 (Beijing Time)/ 9:30-11:30(Central European Time)

Date: August 17, 2022

Zoom ID：892 154 0190

Password：2022

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Abstract

Emissions reduction in the electricity sector is critical in achieving China’s carbon neutrality target. While a national carbon trading market that covers the electricity sector has been established, its effectiveness depends on how this sector evolves into being a more integrated market. This study evaluated the impact of China’s electricity market integration on the cost-effectiveness of carbon pricing. An integrated (regional electricity market) and a segmented (provincial electricity market) market scenario were used to identify possible reform paths going forward. Using high-frequency datasets of the five southern provinces in 2018, we assessed the impact of electricity market integration on the abatement potential and cost-effectiveness of carbon pricing. We found that carbon prices need to be as high as 200 yuan/ton to begin achieving overall carbon reduction. In this context, the regional market is more cost-effective in reducing emissions than the provincial one, as the abatement costs are saved by around 60% compared to the latter under the same emission reduction targets. However, the regional market may also raise potential equity issues. The provincial-level distribution of carbon emission reductions, as well as the withdrawal of coal power, are more concentrated in the regional market than in the provincial one, which indicates an inequitable social-economic-environmental impacts of market integration. Our research findings would help to improve policymakers’ understanding of the interaction between carbon pricing and electricity market reforms. This would then assist them in coordinating an effective design of both the carbon and electricity markets, in addition to supporting China’s carbon neutrality target.

Dr. Song, Feng is a professor at Renmin University of China. Her research focuses on China’s energy economics and current research topics include energy efficiency, renewable energy development and power sector reform of China. Before she joined Renmin University, she graduated from Michigan State University with a Ph.D in Environmental and Resource Economics. She has published papers in American Journal of Agricultural Economics, Applied Energy, Energy Economics and Energy Policy.