The rebound effect of decarbonization in China’s power sector under the carbon trading scheme

Abstract

China mainly promotes economic decarbonization through the carbon trading scheme (ETS) at this stage. The power sector is the most critical in this process. ETS can promote decarbonization in the power sector, but due to the rebound effect, the actual decarbonization effect may not be as expected. This study systematically investigates the rebound effect of decarbonization in China’s power sector under ETS using an almost ideal demand system (AIDS) model and simulation analysis method. The results show that the implementation of ETS had a partial rebound effect on decarbonization in China’s power sector, with magnitudes ranging from 0.186 to 0.866. Furthermore, this study found a strong correlation between the rebound effect and carbon prices; specifically, the lower the carbon price, the greater the rebound effect. Finally, the rebound effect of decarbonization in China’s power sector under ETS is dominated by the indirect rebound effect. These findings suggest that policymakers should consider the rebound effect when formulating or improving policies related to the decarbonization of China’s power sector and assessing the effectiveness of the current ETS. Moreover, taking steps to increase carbon prices would help mitigate the rebound effect.