and the greenhouse gas emission monitoring,
report and verification system.
31
8.5.1 The Failure to Achieve
Market-Based Electricity
Pricing Prevents
the Carbon Market
from Working Effectively
China’s power industry has been dominated by
coal-fired power plants for a long time. The
power industry is not only a major primary
energy consumer, but also a major carbon dioxide emitter. Its carbon dioxide emissions account
for around 40% of the total emissions from
China’s fossil energy consumption. The power
industry has inevitably become a major target for
control, and it plays an important role in shaping
the national carbon market.
32
The Dian Gai No. 9 Order, issued by the
central government in March 2015, opened a
new phase in power system reform. In the previous 18 months, six key policies, including
accelerating transmission and distribution tariff
reform, were introduced. The pilot projects for
transmission and distribution tariff deregulation
were expanded to 20 regions (Shenzhen, western
Inner Mongolia and 18 provinces). In addition,
there are four pilot regions for comprehensive
reform and two pilot regions for power sales
reform. A new mechanism where “the electricity
price is determined mainly by the market” will
eventually be built and will be extremely beneficial to China’s energy saving and emission
reductions.
Overall, the 13th Five-Year Plan (2016–20) is
a critical period for power reform and an initial
stage for the carbon market. The challenge of
how to dynamically align carbon market rules to
power system reform needs to be overcome
urgently.
33 According to Li Jifeng, given that
China is vigorously promoting tariff deregulation, the carbon emitted in power generation
should be attributed to the power producers, and
the rules of the carbon market should be designed
on that basis.
Electricity tariff deregulation could improve
the effectiveness of carbon markets and reduce
emissions in three ways. It could facilitate technical progress in power producers and optimise
the power mix; and it could encourage electricity
users—both those covered and those not covered
by the carbon market—to save energy. Optimisation of the power mix depends largely on
energy authorities planning for power generation
with renewables. The role of the carbon market
should, therefore, be to reduce emissions by
encouraging downstream users to save
electricity.
34
Prices in the carbon market, an important
indicator of the effectiveness of the market’s
rules, reflect the marginal cost for market participants to achieve emissions reduction objectives. The lower the carbon price, the more
effective the rules, and vice versa. Take China’s
carbon markets launched after 2017: calculations
using a computable general equilibrium model
show that the carbon cost for achieving the same
emissions reduction if the power tariff is controlled is 18–32% higher than if the power tariff
is deregulated. This is because electricity price
control prevents the power sector from tapping
the potential for low-cost emissions reduction,
which intensifies the pressure on other sectors
and increases the overall cost of emissions
reduction. In other words, promoting the deregulation of the power tariff may not only reduce
carbon emissions by the power industry, but
significantly reduce emissions reduction pressure
31
Li Zhuo, Obstacles to Integrate Pilot Regional Markets
into National Carbon Market, in Invest Beijing 2016,
(04), pp. 39–41.
32
Zhang Lixing, Comparative Study on and Suggestions
for Participation by Power Companies in Pilot Regions in
Carbon Trading, in Resources Economization & Environment Protection, 2016, (12), pp. 16–17.
33
Li Jifeng, The Design of Carbon Market’s Rules should
be Aligned to Price Deregulation, in China Energy News,
2016-09-12.
34
Li Jifeng, The Design of Carbon Market Rules Should
Be Aligned with Tariff Deregulation, in China Energy
News, 2016-09-12.
552
S. Yaodong and A. Gillespie
report and verification system.
31
8.5.1 The Failure to Achieve
Market-Based Electricity
Pricing Prevents
the Carbon Market
from Working Effectively
China’s power industry has been dominated by
coal-fired power plants for a long time. The
power industry is not only a major primary
energy consumer, but also a major carbon dioxide emitter. Its carbon dioxide emissions account
for around 40% of the total emissions from
China’s fossil energy consumption. The power
industry has inevitably become a major target for
control, and it plays an important role in shaping
the national carbon market.
32
The Dian Gai No. 9 Order, issued by the
central government in March 2015, opened a
new phase in power system reform. In the previous 18 months, six key policies, including
accelerating transmission and distribution tariff
reform, were introduced. The pilot projects for
transmission and distribution tariff deregulation
were expanded to 20 regions (Shenzhen, western
Inner Mongolia and 18 provinces). In addition,
there are four pilot regions for comprehensive
reform and two pilot regions for power sales
reform. A new mechanism where “the electricity
price is determined mainly by the market” will
eventually be built and will be extremely beneficial to China’s energy saving and emission
reductions.
Overall, the 13th Five-Year Plan (2016–20) is
a critical period for power reform and an initial
stage for the carbon market. The challenge of
how to dynamically align carbon market rules to
power system reform needs to be overcome
urgently.
33 According to Li Jifeng, given that
China is vigorously promoting tariff deregulation, the carbon emitted in power generation
should be attributed to the power producers, and
the rules of the carbon market should be designed
on that basis.
Electricity tariff deregulation could improve
the effectiveness of carbon markets and reduce
emissions in three ways. It could facilitate technical progress in power producers and optimise
the power mix; and it could encourage electricity
users—both those covered and those not covered
by the carbon market—to save energy. Optimisation of the power mix depends largely on
energy authorities planning for power generation
with renewables. The role of the carbon market
should, therefore, be to reduce emissions by
encouraging downstream users to save
electricity.
34
Prices in the carbon market, an important
indicator of the effectiveness of the market’s
rules, reflect the marginal cost for market participants to achieve emissions reduction objectives. The lower the carbon price, the more
effective the rules, and vice versa. Take China’s
carbon markets launched after 2017: calculations
using a computable general equilibrium model
show that the carbon cost for achieving the same
emissions reduction if the power tariff is controlled is 18–32% higher than if the power tariff
is deregulated. This is because electricity price
control prevents the power sector from tapping
the potential for low-cost emissions reduction,
which intensifies the pressure on other sectors
and increases the overall cost of emissions
reduction. In other words, promoting the deregulation of the power tariff may not only reduce
carbon emissions by the power industry, but
significantly reduce emissions reduction pressure
31
Li Zhuo, Obstacles to Integrate Pilot Regional Markets
into National Carbon Market, in Invest Beijing 2016,
(04), pp. 39–41.
32
Zhang Lixing, Comparative Study on and Suggestions
for Participation by Power Companies in Pilot Regions in
Carbon Trading, in Resources Economization & Environment Protection, 2016, (12), pp. 16–17.
33
Li Jifeng, The Design of Carbon Market’s Rules should
be Aligned to Price Deregulation, in China Energy News,
2016-09-12.
34
Li Jifeng, The Design of Carbon Market Rules Should
Be Aligned with Tariff Deregulation, in China Energy
News, 2016-09-12.
552
S. Yaodong and A. Gillespie