• Energy Research

The adoption of emissions trading scheme (ETS) and renewable energy sources (RES) policies have been essential to achieving China’s national targets for reducing CO2 emissions and developing non-fossil energy sources. The combination of ETS and RES policies raises an important issue: What is the effect of combining ETS and RES policies on the existing carbon market and economy? Focusing on the design of the nationwide carbon market, this paper uses a multi-regional computable general equilibrium (CGE) model to analyze the economic impacts of ETS policy when combined with RES policies in China. The results show that China’s annual ETS emissions cap should decrease by 0.3% to maintain stable CO2 prices and achieve the targets in China’s intended nationally determined contribution (INDC). It is estimated that the CO2 price on the nationwide carbon market would decrease by 11–64% when the renewable energy subsidy rate increases from 20 to 100%, and the total trading volume would decrease by 3–25%. The results also show that the combination of an ETS and a feed-in tariff (FIT) results in greater GDP cost and welfare loss in all Chinese regions, increasing the total social cost by 0.01–0.06%.

Abstract Variable renewable electricity (VRE) is expected to play an important role in global decarbonization. However, due to VRE’s intermittency and uncertainty, integrating VRE into the power system may cause additional integration costs for both power systems and consumers. Estimating these integration costs can provide insights for power system planning, support policy making and power market designs. In this paper, the integration costs of wind and solar on both demand and supply sides are quantitatively investigated by an economic power dispatch model combined with Monte Carlo simulation. A case study of Guangdong Province in China is conducted under three scenarios of power mix changes (only increasing the VRE installation; replacing the existing coal-fired power; and replacing the existing coal-fired power without power storage). The results show that integration costs from both supply and demand sides are non-negligible when VRE replaces existing capacity, and the costs are increasing with the penetration rate of VRE. On supply side, it ranges from −2.3 to 12.1 $/MWh for wind penetration from 5% to 30%, and −5.5 to 7.1 $/MWh for that of solar penetration. Moreover, consumers on demand side will bear −7.3 to 185.9 $/MWh integration costs for wind and solar integration, which is much higher than the supply side. In addition, solar power has a lower integration cost than wind power due to a more consistent power output with the load curve of power demand on the time scale. Moreover, our results reveal that blindly reducing the renewable energy curtailment rate may not be cost-effective.

Abstract China has planned to implement renewable portfolio standards (RPS) and national carbon cap-and-trade to promote the low-carbon transformation of society. How to design and coordinate the goals of these policies becomes a key issue. This study quantitatively evaluates the effects of RPS and carbon caps in China’s power sector using a multi-regional power optimization model combining with decomposition method. Based on the framework, this study focuses on two questions: (1) How to coordinate policy goals of RPS and carbon caps to ensure the effectiveness of each policy in the face of policy overlapping? (2) How to design power generation and transmission planning to achieve the goals of different policy mixes? Results show that these two policies contain overlapping elements, yet remain different impacts on regional power structures, inter-regional power and coal dispatches. An effective policy interval for RPS and carbon caps is estimated to examine the effectiveness of any policy mixes. If an RPS with a 17% non-hydro renewable share is implemented by 2030, the effective interval of carbon caps will be between a 27.5% and 38.2% reduction in carbon intensity. Results support that there are strong inner linkages between reasonable power system planning and current status of policy mix.

Abstract Using the ensemble empirical mode decomposition and the vector autoregressive model, this paper investigates the impact of oil price changes on North American and European natural gas markets from a multi-scale perspective. In order to identify the impact of the North American shale gas revolution, the data is divided into two sub-periods: the pre-revolution period (2 January 1998–31 December 2005) and the post-revolution period (1 September 2009–20 May 2016). First, at the original data level, we found that the impact of oil price shocks on the North American gas market has become weaker since the shale gas revolution, whereas the shock effect on the European gas market has become stronger. Secondly, looking at the North American market, oil price shocks caused short-term fluctuations only before the shale gas revolution, whereas, in the medium term, they have had a significant impact both before and after the revolution, due to significant events with medium-term effects. From the long-term perspective, oil price shocks can lead to positive changes in the trend of the natural gas market both before and after the revolution. Thirdly, with regard to the European gas market, the impact of oil price shocks has been significant only since the shale gas revolution in the short and medium term, whereas, in the long term, shocks from the crude oil market resulted in a negative change in the trend of the natural gas market just before the shale gas revolution. These findings, based on the information gathered from these multiple time scales, may help energy policy makers, energy traders and financial investors make effective decisions related to risk management and investment.

Abstract Regulators need to pay attention to the negative effects of the transaction costs when they define the reasonable coverage of the emissions trading scheme (ETS). In addition, the market structure in the ETS also needs to be considered in the market efficiency evaluation, as most covered firms come from industries with high market concentration. This paper incorporates transaction costs (monitoring, reporting and verification (MRV) costs and trading costs) and market structure into a partial equilibrium model to study their effect on the reasonable coverage of the ETS. A database of the 1867 industrial firms included in the ETS pilots in China is established for the case study. It is found that the MRV costs become the main factor of the breakdown in efficiency of the ETS. However, there seems to be no inherent relationship between the market structure and the efficient coverage of the allowance market. The policy implications derived from the case study can provide useful references for the upcoming national ETS in China.

Abstract Solar photovoltaic (PV) technology is widely regarded as a significant and sustainable renewable energy option to fight against climate change.Accordingly, it is important to explore the potential of greenhouse gases (GHGs) mitigation and temperature benefits by substituting PV-generated power for coal-fired electricity. This necessity becomes particularly clear given that China hascommitted itself to a carbon emissions peak around 2030. Based on an integrated energy-economy-environmental model and a simple climate response model, we reach the following conclusions: (1) By restraining the cumulative GHGs emissions space within 255 GtCO 2eq till 2050, PV solar promises to dominate GHGs mitigation, with the highest contribution reaching 64.67%. (2) Under the moderate emissions-control case, China will achieve its emissions peak target, with solar energy substitution relieving the nation׳s dependence on coal. (3) The highest radiative forcing and temperature benefits yieldedthrough replacing coal-generated power with solar power is around 20% and 11.05%, respectively. (4) Finally, it is not too costly to gain such benefits: at most, the accumulated economic cost would be 102.14 trillion Yuanuntil 2050, accounting for less than 3% of the accumulated GDP.

Relying on real options theory, we employ a multistage decision model to analyze the effect of delaying the introduction of emission trading systems (ETS) on power plant investments in carbon capture and storage (CCS) retrofits, on plant operation, and on carbon dioxide (CO2) abatement. Unlike previous studies, we assume that the investment decision is made before the ETS is in place, and we allow CCS operating flexibility for new power plant investments. Thus, the plant may be run in CCS-off mode if carbon prices are low. We employ Monte Carlo simulation methods to account for uncertainties in the prices of CO2 certificates, other inputs, and output prices, relying on a realistic parameterization for a supercritical pulverized coal plant in China. We find that CCS operating flexibility lowers the critical carbon price needed to support CCS investment because it renders CCS investment less irreversible. For a low carbon price path, operating flexibility also implies that delaying the introduction of an ETS hardly affects plant CO2 abatement since the plant operator is better off purchasing emission certificates rather than operating the plant in CCS mode. Interestingly, for low carbon prices we find a U-shaped relation between the length of the delay and the economic value of the plant. Thus, delaying the introduction of an ETS may make investors worse off.

Abstract Most countries of the world have put forward the goal of striving for carbon neutrality. The goal is hard to achieve by only relying on supply side solutions for the world. Most countries should pay more attention to the potential of energy conservation and emission reduction in the field of final demand. We construct an empirical analytic framework to investigate energy demand characteristics as economic growth from the perspective of final demand, and the results show a U-shaped curve relationship between the ratio of energy embodied in consumption to energy embodied in investment (REECEEI) and real gross domestic product per capita. The REECEEIs of major developing and developed countries are very different. Compare to the average baseline curve scenario, there is a notable conservation potential of energy embodied in final demand for major developing and developed countries. In climate negotiation, the demand for energy embodied in investment of developing countries should be guaranteed because it is the foundation of their economic development. To conserve energy and reduce emissions in the field of final demand, developing countries should focus on the field of energy embodied in investment, while developed countries should focus on the field of energy embodied in consumption.

Abstract Carbon Capture and Storage (CCS) has been viewed as an emission abatement option with great potential in China as coal has dominated China's energy consumption. China has already started to pay attention to CCS, as well as to the proposed the concept of ‘CCUS’ (which adds CO 2 Utilization into the chain of capture, transportation and storage). However, CCS is still in the early stages of its technological development, and the high cost, with several internal and external uncertainties make the role that CCS can play in China's future emission reduction unclear. From the perspective of general equilibrium analysis, this paper introduces CCS into a regional energy–economy–environment integrated assessment model, and makes a comprehensive evaluation of CCS's potential for future development and contribution to emission abatement in China. At climate policy level, the potential contribution of CCS in emission abatement has been evaluated against different future emission constraint scenarios in China. At technological level, the effects of endogenous learning and policy incentives on CCS have been investigated, and the substitution capacities of CCS and Non-hydro renewables to fossil energy have been discussed, as well as their technology penetration rates. Furthermore, the impact of CO 2 utilization on the development of CCS has also been discussed.