This report analyzes how China's national carbon emissions trading scheme (ETS) will interact with its power sector. It covers the seven ETS pilots, ETS and power sector stakeholders, electricity pricing, and China's unique dispatch model.
ETS stakeholders and power sector stakeholders are different; they have overlapping responsibilities but often divergent interests
The ETS pilots have been successful at building capacity, but significant challenges issues lie ahead regarding permit allocations, data reliability, and the impact of complementary policies that could undercut the ETS's effectiveness
Short term pricing recommendation: cover indirect emissions
Long term pricing recommendation: China should transition towards a competitive electricity market to allow a carbon price to pass through to end users
China should adopt two-part pricing to avoid stranded asset issues with current generation and expand balancing areas to solve the challenge of equal shares dispatch