Combined Effects of Carbon Pricing and Power Market Reform on CO 2 Emissions Reduction in China's Electricity Sector

33 Pages Posted: 7 Aug 2021

See all articles by Mingquan Li

Mingquan Li

Beihang University - School of Economics and Management

Huiwen Gao

Beihang University - School of Economics and Management

Ahmed Abdulla

Carleton University - Department of Mechanical and Aerospace Engineering

Rui Shan

University of North Carolina (UNC) at Chapel Hill - Gillings School of Global Public Health; Oak Ridge National Laboratory

Shuo Gao

Rocky Mountain Institute - Beijing Representative Office

Date Written: 2021

Abstract

China is pursuing action to reduce greenhouse gas emissions from its coal-dominated electric power system. Two key strategies are power market reform and carbon pricing. This paper investigate the combined effects of these two strategies in reducing CO2 emissions from power system operations. We develop an economic dispatch model to simulate hourly power supply system operation in China Southern Power Grid in 2018 under fifteen carbon pricing scenarios; these reflect a wide range of policy ambition, from today’s carbon prices to much higher ones that aim to instigate aggressive emission mitigation. Our results show that moderate carbon pricing alone is insufficient to effectively reduce CO2 emissions without concurrent power market reform. With power market reform and as carbon prices increase, large coal units supplemented by energy storage witness higher use rates as they supplant smaller coal-fired generators, until a carbon price of 300 RMB/TCO2 phases out coal use in favor of natural gas. Only at carbon prices higher than 300 RMB/TCO2 do emissions begin to decrease appreciably. Geographic disparities emerge among the five provinces that comprise the Southern Power Grid, with Guangdong witnessing the most CO2 emission reduction at high carbon prices.

Suggested Citation

Li, Mingquan and Gao, Huiwen and Abdulla, Ahmed and Shan, Rui and Gao, Shuo, Combined Effects of Carbon Pricing and Power Market Reform on CO 2 Emissions Reduction in China's Electricity Sector (2021). Available at SSRN: https://ssrn.com/abstract=3900925 or http://dx.doi.org/10.2139/ssrn.3900925

Mingquan Li (Contact Author)

Beihang University - School of Economics and Management ( email )

37 Xue Yuan Road
Beijing 100083
China

Huiwen Gao

Beihang University - School of Economics and Management ( email )

37 Xue Yuan Road
Beijing 100083
China

Ahmed Abdulla

Carleton University - Department of Mechanical and Aerospace Engineering

1125 colonel By Drive
Ottawa, K1S 5B6
Canada

Rui Shan

University of North Carolina (UNC) at Chapel Hill - Gillings School of Global Public Health ( email )

Chapel Hill, NC 27599
United States

Oak Ridge National Laboratory ( email )

PO Box 2008
Mail Stop 6037
Oak Ridge, TN 37831-6037
United States

Shuo Gao

Rocky Mountain Institute - Beijing Representative Office ( email )

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