The role of output-based emission trading system in the decarbonization of China's power sector

Abstract

The emission trading system (ETS) is a key policy for China to achieve carbon neutrality. China's national ETS started operation and covered the power sector first, which will promote its transformation. This study explores how China's national ETS can support the future decarbonization of the power system. With benchmark tightening, China's ETS can cost-effectively peak CO2 emissions of the power sector before 2030 and reduce 13% of the total emissions by 2035, compared to a No-Carbon-Pricing Scenario. Under the ETS, the allowance price would rise gradually to 350 yuan/tCO2 by 2035. The main driving factor for emissions reduction would be improving the efficiency of coal-fired power generation between 2020 and 2025 and deploying carbon capture and storage (CCS) from 2030, respectively. Fuel-switching away from coal is limited under the ETS with technology-specific benchmarks and free allocation. Regional distributional effects could arise under the ETS. Regions with a higher share of ultra-supercritical units could have allowance surpluses at the beginning, while only regions with CCS-equipped coal-fired units have the potential to gain high allowance surpluses by 2035.