Mutual conversion mechanisms for environmental interest products to jointly enhance synergistic effect between power, CET and TGC markets in China

Abstract

The construction of mutual conversion mechanisms for environmental interest products (EIP) is crucial to enhance connectivity and promote the synergistic development among multiple market systems including power, carbon emissions trading (CET) and tradable green certificate (TGC). In this paper, static and dynamic TGC‑carbon allowance (CA)-Chinese certified emission reduction (CCER) conversion mechanisms are designed from the perspective of physical and economic values. Based on the multi-agent dynamic game model considering Weber-Fechner's law, the transaction behavior for various generation companies (GENCOs) and power purchasers in power, CET and TGC markets under different conversion mechanisms are analyzed. The results demonstrate that TGC-CA-CCER conversion mechanisms further expand the transaction space for low-carbon GENCOs, and effectively reflect the differentiated value of each EIP in diverse scenarios and time periods. Compared with other conversion mechanisms, the dynamic TGC-CA-CCER conversion mechanism based on physical values has better economic as well as environmental benefits, and enhances the competitiveness and liquidity of markets, which is the optimal solution to realize the mutual conversion of EIP. These insights can make up for the research gap of mutual conversion mechanisms on different EIP and provide mechanism options for realizing favorable interaction among power, CET and TGC markets.