What will happen to the power supply structure and CO2 emissions reduction when TGC meets CET in the electricity market in China?

Abstract

In order to fulfill the goals of sustainable development and emission reduction, as the main contributor to emissions, optimizing the electric structure is imperative for Chinese electric power industry. In the "thirteenth five-year" period, China has implemented tradable green certificates (TGC) and carbon emissions trading (CET) in the electricity market to accelerate the development of renewable energy. In this study, we analyze and simulate the dual effects of TGC and CET on the electricity market based on the theories and models of equilibrium and system dynamics. The obtained results show that: (1) The increase of renewable portfolio standards and carbon price is advantageous to the expansion of green electricity. The higher the portfolio standard and the carbon price are, the better the electric structure optimization could be. (2) The proportion of renewable energy power generation is expected to achieve the goal of ‘renewable energy thirteenth five-year development planning’ by 2020 (Goal: 680 million kW, 1.9 trillion kW h, 27% of all electricity generated). (3) The CO2 emission in the electric power industry will be controlled, meanwhile effectively promoting the realization of national CO2 emission-reduction target by 2020 (Target: below 1.6298 ton CO2 emission/10,000 yuan). (4) TGC system and CET system are incentive compatible in China. Finally, we propose some policy recommendations on the mechanism design and implementation for these two systems.