IDEAS home Printed from https://ideas.repec.org/a/eee/energy/v259y2022ics0360544222019302.html
   My bibliography  Save this article

The impact of allocation methods on carbon emission trading under electricity marketization reform in China: A system dynamics analysis

Author

Listed:
  • Chi, Yuan-ying
  • Zhao, Hao
  • Hu, Yu
  • Yuan, Yong-ke
  • Pang, Yue-xia

Abstract

Carbon emission trading (CET) is a major institutional innovation to limit carbon dioxide emissions, which has a significant effect and influence. There are two unpaid quota allocation methods in CET, benchmark-based Vs. grandfathering. It appears meaningful to examine which allocation method can make more profit and less emission with the implementation of electricity marketization reform. Defining the allocation of the initial quota is also one of the basic points of CET. Accordingly, this paper developed a system dynamics model with different scenarios to simulate and evaluate the allocation methods with different unpaid quotas in the context of electricity reform(EMR). The results show that the grandfathering method allocation can vitalize the CET market and reduce more carbon emissions per unit, which is better than the benchmark-based method in terms of revenue, profit, investment space, and power generation. Setting a 10% unpaid quota is a benefit for steady transition. In the long term, the market on-grid price gradually shows an advantage in efficiency and liquidity.

Suggested Citation

  • Chi, Yuan-ying & Zhao, Hao & Hu, Yu & Yuan, Yong-ke & Pang, Yue-xia, 2022. "The impact of allocation methods on carbon emission trading under electricity marketization reform in China: A system dynamics analysis," Energy, Elsevier, vol. 259(C).
    • Handle: RePEc:eee:energy:v:259:y:2022:i:c:s0360544222019302
    DOI: 10.1016/j.energy.2022.125034
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0360544222019302
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.energy.2022.125034?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Philippe Quirion, 2009. "Historic versus output-based allocation of GHG tradable allowances: a comparison," Climate Policy, Taylor & Francis Journals, vol. 9(6), pages 575-592, November.
    2. Barlas, Yaman, 1989. "Multiple tests for validation of system dynamics type of simulation models," European Journal of Operational Research, Elsevier, vol. 42(1), pages 59-87, September.
    3. Kleijnen, Jack P. C., 1995. "Verification and validation of simulation models," European Journal of Operational Research, Elsevier, vol. 82(1), pages 145-162, April.
    4. Golombek, Rolf & Kittelsen, Sverre A.C. & Rosendahl, Knut Einar, 2013. "Price and welfare effects of emission quota allocation," Energy Economics, Elsevier, vol. 36(C), pages 568-580.
    5. Robert N. Stavins, 2008. "Addressing climate change with a comprehensive US cap-and-trade system," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(2), pages 298-321, Summer.
    6. Saul I. Gass, 1983. "Feature Article—Decision-Aiding Models: Validation, Assessment, and Related Issues for Policy Analysis," Operations Research, INFORMS, vol. 31(4), pages 603-631, August.
    7. Qudrat-Ullah, Hassan & Seong, Baek Seo, 2010. "How to do structural validity of a system dynamics type simulation model: The case of an energy policy model," Energy Policy, Elsevier, vol. 38(5), pages 2216-2224, May.
    8. Hossain, Farzad & Karim, Md. Rezwanul & Bhuiyan, Arafat A., 2022. "A review on recent advancements of the usage of nano fluid in hybrid photovoltaic/thermal (PV/T) solar systems," Renewable Energy, Elsevier, vol. 188(C), pages 114-131.
    9. Feng, Tian-tian & Yang, Yi-sheng & Yang, Yu-heng, 2018. "What will happen to the power supply structure and CO2 emissions reduction when TGC meets CET in the electricity market in China?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 92(C), pages 121-132.
    10. Zhou, P. & Wang, M., 2016. "Carbon dioxide emissions allocation: A review," Ecological Economics, Elsevier, vol. 125(C), pages 47-59.
    11. Chen, Xing & Lin, Boqiang, 2021. "Towards carbon neutrality by implementing carbon emissions trading scheme: Policy evaluation in China," Energy Policy, Elsevier, vol. 157(C).
    12. Ayman Alhejji & Alban Kuriqi & Jakub Jurasz & Farag K. Abo-Elyousr, 2021. "Energy Harvesting and Water Saving in Arid Regions via Solar PV Accommodation in Irrigation Canals," Energies, MDPI, vol. 14(9), pages 1-24, May.
    13. Dai, Hancheng & Xie, Yang & Liu, Jingyu & Masui, Toshihiko, 2018. "Aligning renewable energy targets with carbon emissions trading to achieve China's INDCs: A general equilibrium assessment," Renewable and Sustainable Energy Reviews, Elsevier, vol. 82(P3), pages 4121-4131.
    14. Cong, Rong-Gang & Wei, Yi-Ming, 2010. "Potential impact of (CET) carbon emissions trading on China’s power sector: A perspective from different allowance allocation options," Energy, Elsevier, vol. 35(9), pages 3921-3931.
    15. Heleen Groenenberg & Kornelis Blok, 2002. "Benchmark-based emission allocation in a cap-and-trade system," Climate Policy, Taylor & Francis Journals, vol. 2(1), pages 105-109, March.
    16. Wu, Yinyin & Wang, Ping & Liu, Xin & Chen, Jiandong & Song, Malin, 2020. "Analysis of regional carbon allocation and carbon trading based on net primary productivity in China," China Economic Review, Elsevier, vol. 60(C).
    17. Valerie J. Karplus & Xiliang Zhang, 2017. "Incentivizing firm compliance with Chinas national emissions trading system," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    18. Boemare, Catherine & Quirion, Philippe, 2002. "Implementing greenhouse gas trading in Europe: lessons from economic literature and international experiences," Ecological Economics, Elsevier, vol. 43(2-3), pages 213-230, December.
    19. Tang, Ling & Wu, Jiaqian & Yu, Lean & Bao, Qin, 2015. "Carbon emissions trading scheme exploration in China: A multi-agent-based model," Energy Policy, Elsevier, vol. 81(C), pages 152-169.
    20. Zhang, Lirong & Li, Yakun & Jia, Zhijie, 2018. "Impact of carbon allowance allocation on power industry in China’s carbon trading market: Computable general equilibrium based analysis," Applied Energy, Elsevier, vol. 229(C), pages 814-827.
    21. Zhang, Da & Karplus, Valerie J. & Cassisa, Cyril & Zhang, Xiliang, 2014. "Emissions trading in China: Progress and prospects," Energy Policy, Elsevier, vol. 75(C), pages 9-16.
    22. Beat Hintermann, 2011. "Market Power, Permit Allocation and Efficiency in Emission Permit Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(3), pages 327-349, July.
    23. Tao Pang & Maosheng Duan, 2016. "Cap setting and allowance allocation in China's emissions trading pilot programmes: special issues and innovative solutions," Climate Policy, Taylor & Francis Journals, vol. 16(7), pages 815-835, October.
    24. Zhang, Yue-Jun & Wang, Wei, 2021. "How does China's carbon emissions trading (CET) policy affect the investment of CET-covered enterprises?," Energy Economics, Elsevier, vol. 98(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Miaomiao & Wu, Jun & Chen, Xinyu & Zhu, Xiaoxi, 2023. "Grandfathering or benchmarking? The performance of implementing blockchain technology in a low-carbon supply chain," Energy, Elsevier, vol. 284(C).
    2. Peng, Qiao & Liu, Weilong & Zhang, Yong & Zeng, Shihong & Graham, Byron, 2023. "Generation planning for power companies with hybrid production technologies under multiple renewable energy policies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 176(C).
    3. Huang, Zhenyu & Liu, Youbo & Li, Kecun & Liu, Jichun & Gao, Hongjun & Qiu, Gao & Shen, Xiaodong & Liu, Junyong, 2023. "Evaluating long-term profile of demand response under different market designs: A comparison of scarcity pricing and capacity auction," Energy, Elsevier, vol. 282(C).
    4. Yan, Sizhe & Wang, Weiqing & Li, Xiaozhu & Zhao, Yi, 2022. "Research on a cross-regional robust trading strategy based on multiple market mechanisms," Energy, Elsevier, vol. 261(PB).
    5. Xinwei Zhao & Xinsong Yang & Geng Peng & Shengjie Yue, 2023. "International Trade and Carbon Emissions: Evaluating the Role of Trade Rule Uncertainty," Sustainability, MDPI, vol. 15(15), pages 1-19, July.
    6. Zhixiong Weng & Cuiyun Cheng & Yang Xie & Hao Ma, 2022. "Reduction Effect of Carbon Emission Trading Policy in Decreasing PM 2.5 Concentrations in China," IJERPH, MDPI, vol. 19(23), pages 1-12, December.
    7. Zhao, Jing & Zhang, Qin & Zhou, Dequn, 2023. "Can marketed on-grid price drive the realization of energy transition in China’s power industry under the background of carbon neutrality?," Energy, Elsevier, vol. 276(C).
    8. Wang, Hao-ran & Feng, Tian-tian & Zhong, Cheng, 2023. "Effectiveness of CO2 cost pass-through to electricity prices under “electricity-carbon” market coupling in China," Energy, Elsevier, vol. 266(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ying, Zhou & Xin-gang, Zhao, 2021. "The impact of Renewable Portfolio Standards on carbon emission trading under the background of China’s electricity marketization reform," Energy, Elsevier, vol. 226(C).
    2. Yifei Hua & Feng Dong, 2019. "China’s Carbon Market Development and Carbon Market Connection: A Literature Review," Energies, MDPI, vol. 12(9), pages 1-25, May.
    3. Tang, Ling & Wang, Haohan & Li, Ling & Yang, Kaitong & Mi, Zhifu, 2020. "Quantitative models in emission trading system research: A literature review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 132(C).
    4. Pang, Jun & Timilsina, Govinda, 2021. "How would an emissions trading scheme affect provincial economies in China: Insights from a computable general equilibrium model," Renewable and Sustainable Energy Reviews, Elsevier, vol. 145(C).
    5. Liu, Beibei & He, Pan & Zhang, Bing & Bi, Jun, 2012. "Impacts of alternative allowance allocation methods under a cap-and-trade program in power sector," Energy Policy, Elsevier, vol. 47(C), pages 405-415.
    6. Jiang, Jingjing & Xie, Dejun & Ye, Bin & Shen, Bo & Chen, Zhanming, 2016. "Research on China’s cap-and-trade carbon emission trading scheme: Overview and outlook," Applied Energy, Elsevier, vol. 178(C), pages 902-917.
    7. Tang, Ling & Shi, Jiarui & Bao, Qin, 2016. "Designing an emissions trading scheme for China with a dynamic computable general equilibrium model," Energy Policy, Elsevier, vol. 97(C), pages 507-520.
    8. Yu, Zhongjue & Geng, Yong & Calzadilla, Alvaro & Bleischwitz, Raimund, 2022. "China's unconventional carbon emissions trading market: The impact of a rate-based cap in the power generation sector," Energy, Elsevier, vol. 255(C).
    9. Wang, M. & Zhou, P., 2022. "A two-step auction-refund allocation rule of CO2 emission permits," Energy Economics, Elsevier, vol. 113(C).
    10. Huang, Hai & Roland-Holst, David & Springer, Cecilia & Lin, Jiang & Cai, Wenjia & Wang, Can, 2019. "Emissions trading systems and social equity: A CGE assessment for China," Applied Energy, Elsevier, vol. 235(C), pages 1254-1265.
    11. Zhang, Yue-Jun & Wang, Ao-Dong & Tan, Weiping, 2015. "The impact of China's carbon allowance allocation rules on the product prices and emission reduction behaviors of ETS-covered enterprises," Energy Policy, Elsevier, vol. 86(C), pages 176-185.
    12. Wang, M. & Zhou, P., 2017. "Does emission permit allocation affect CO2 cost pass-through? A theoretical analysis," Energy Economics, Elsevier, vol. 66(C), pages 140-146.
    13. Weng, Qingqing & Xu, He, 2018. "A review of China’s carbon trading market," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 613-619.
    14. Ye Duan & Zenglin Han & Hailin Mu & Jun Yang & Yonghua Li, 2019. "Research on the Impact of Various Emission Reduction Policies on China’s Iron and Steel Industry Production and Economic Level under the Carbon Trading Mechanism," Energies, MDPI, vol. 12(9), pages 1-26, April.
    15. Yun-Fei Yao & Qiao-Mei Liang, 2016. "Approaches to carbon allowance allocation in China: a computable general equilibrium analysis," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 84(1), pages 333-351, November.
    16. Chunyu Pan & Anil Kumar Shrestha & Guangyu Wang & John L. Innes & Kevin Xinwei Wang & Nuyun Li & Jinliang Li & Yeyun He & Chunguang Sheng & John-O. Niles, 2021. "A Linkage Framework for the China National Emission Trading System (CETS): Insight from Key Global Carbon Markets," Sustainability, MDPI, vol. 13(13), pages 1-15, July.
    17. Xiong, Ling & Shen, Bo & Qi, Shaozhou & Price, Lynn & Ye, Bin, 2017. "The allowance mechanism of China’s carbon trading pilots: A comparative analysis with schemes in EU and California," Applied Energy, Elsevier, vol. 185(P2), pages 1849-1859.
    18. Wang, Kung-Jeng & Lee, Kun-Shan & Liao, Jia-Hong, 2019. "Technology cooperation modeling of multiple profit-centered business units: A system dynamics framework," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 162(C), pages 195-220.
    19. Liu, Yu & Tan, Xiu-Jie & Yu, Yang & Qi, Shao-Zhou, 2017. "Assessment of impacts of Hubei Pilot emission trading schemes in China – A CGE-analysis using TermCO2 model," Applied Energy, Elsevier, vol. 189(C), pages 762-769.
    20. Haoran Zhang & Rongxia Zhang & Guomin Li & Wei Li & Yongrok Choi, 2020. "Has China’s Emission Trading System Achieved the Development of a Low-Carbon Economy in High-Emission Industrial Subsectors?," Sustainability, MDPI, vol. 12(13), pages 1-20, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:energy:v:259:y:2022:i:c:s0360544222019302. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/energy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.