IEA-中国碳市场在电力行业低碳转型中的作用（英文）-2021.4-86页_4mb

Summary of "The Role of China's ETS in Power Sector Decarbonisation"

Core Content

China's Emissions Trading System (ETS) is a critical market-based instrument for achieving its climate goals, including peaking CO₂ emissions before 2030 and reaching carbon neutrality by 2060. The ETS was officially launched in 2017 and will start operating in the power sector in 2021, with plans to expand to other energy-intensive sectors. The power sector accounts for over 40% of China's CO₂ emissions from fossil fuel combustion, making it a key focus for the ETS.

The report explores how the ETS can drive emissions reductions in the power sector, support decarbonisation, and align with the country's long-term climate ambitions. It uses a capacity expansion and dispatch model to simulate national and provincial power system scenarios from 2020 to 2035, evaluating the impacts of the ETS on emissions, technologies, and costs.

Key Findings

• ETS and CO₂ Peaking: With gradually tightened emissions intensity benchmarks, the ETS can help China achieve CO₂ emissions peaking in the power sector before 2030 in a cost-effective manner. By 2035, emissions from electricity generation would be 12% lower under the ETS compared to the No-Carbon-Pricing Scenario.

• Allowance Price Trends: The allowance price under the ETS would rise from around CNY 100/t CO₂ in 2020 to CNY 360/t CO₂ in 2035, reflecting increased stringency in emissions benchmarks.

• Efficiency Improvements: The ETS encourages more efficient coal-fired power generation, particularly through the use of ultra-supercritical units. By 2035, these units would account for 94% of unabated coal-based generation.

• CCUS Uptake: The ETS could support the deployment of Carbon Capture, Utilisation, and Storage (CCUS) technology in the power sector by 2030, as units with CCUS could sell surplus allowances. CCUS deployment could avoid nearly 300 Mt CO₂ in 2035.

• Limited Fuel Switching: The current output- and rate-based design of the ETS limits incentives for switching to gas and non-fossil fuels, as it does not directly support these technologies. This could hinder deeper decarbonisation unless policy adjustments are made.

• Auctioning Enhances Impact: Introducing allowance auctions could significantly enhance emissions reductions, as it raises the effective carbon cost and reduces the share of unabated coal-fired power. By 2035, gas-fired generation could double under auctioning, and solar and wind generation could increase by over 40% and 10%, respectively.

• Regional Disparities: The ETS could lead to regional distributional effects, with regions having more ultra-supercritical units benefiting, while those with older, less efficient units facing additional costs. These disparities may widen over time with tighter benchmarks and increased CCUS deployment.

Main Policy Recommendations

1. Tighten and Merge Benchmarks: Gradually lower and merge emissions benchmarks to improve the effectiveness of the output-based ETS and reduce incentives for high-emitting assets.
2. Accelerate Power Market Reform: Coordinate power market reforms with the ETS to enhance its impact on efficiency and low-emission technologies.
3. Introduce Allowance Auctioning: Implement auctions to provide stronger signals for fuel switching and generate revenue for the clean energy transition.
4. Transition to a Mass-Based Design: Shift to a fixed cap system to ensure emissions trajectory certainty and support long-term climate goals.
5. Strengthen Policy Coordination: Align the ETS with other policies such as renewables deployment, energy efficiency, and CCUS support to enhance structural decarbonisation.

Key Information

• The ETS is based on output- and rate-based allocation, with free allowances currently allocated to power plants.
• The model assumes economic dispatch and expanded interprovincial trade, with FITs for wind and solar phased out after 2020.
• The ETS Scenario shows that by 2035, the average emissions intensity of coal-fired power could decrease to 764 g CO₂/kWh, which is 5% below the projected level without ETS.
• The ETS Auctioning Scenario indicates that by 2035, emissions from electricity generation could peak at a lower level than under free allocation, with an additional 10% reduction in emissions (nearly 500 Mt CO₂).
• Annual auction revenues could reach CNY 685 billion (USD 99 billion) by 2035, which could be used to support clean energy transition and address electricity affordability.

Conclusion

China's ETS is a pivotal mechanism in the country's strategy to decarbonise the power sector and meet its climate targets. While it has the potential to drive efficiency improvements and CCUS adoption, its current design may limit the transition to cleaner fuels. Introducing auctions and aligning with broader policy reforms could significantly enhance its effectiveness, ensuring cost-effective and structural emissions reductions.