Impact of benchmark tightening design under output-based ETS on China's power sector

Abstract

China's national Emission Trading System (ETS), which covers the power sector, is a key policy for supporting the low-carbon transformation of the power sector under China's carbon neutrality target. This study improved the portrayal of China's national ETS in the power planning model and characterised its output-based mechanism and special gas-fired power design. The impacts of different output-based ETS designs on the decarbonisation of power systems in China were then explored. The results show that the ETS can effectively peak the emissions of China's power sector earlier and support the application of carbon capture and storage (CCS) technology with slight impact on the average electricity cost. Benchmark tightening by 2%–5% every five years can lead to 3%–7% lower peak emissions of the power sector and deployment of CCS technology in 2025–2030. However, the current ETS design, which covers only coal- and gas-fired power units, plays a limited role in promoting renewable energy development by encouraging power generation by 1.3 % in 2035, with benchmark tightening of 5 % every five years. Distribution effects will occur among technologies and regions and will increase under more stringent benchmarks. Therefore, a moderate benchmark tightening rate is required to balance emission reduction and distribution effects in the near future.