IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v17y2025i13p5992-d1690745.html

Co-Benefits of Carbon Pricing and Electricity Market Liberalization: A CGE Case Study

Author

Listed:
  • Ning Yan

    (Jiaxing Hengchuang Electric Power Design & Institute Co., Ltd., Jiaxing 314100, China)

  • Shenhai Huang

    (Jiaxing Hengchuang Electric Power Design & Institute Co., Ltd., Jiaxing 314100, China)

  • Yan Chen

    (Jiaxing Hengchuang Electric Power Design & Institute Co., Ltd., Jiaxing 314100, China)

  • Daini Zhang

    (Jiaxing Hengchuang Electric Power Design & Institute Co., Ltd., Jiaxing 314100, China)

  • Qin Xu

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710049, China)

  • Xiangyi Yang

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710049, China)

  • Shiyan Wen

    (School of Economics, Xi’an University of Finance and Economics, Xi’an 710003, China)

Abstract

This study explores how carbon pricing and electricity market liberalization jointly contribute to China’s sustainable energy transition. Using a dynamic computable general equilibrium (CGE) model (CEEEA2.0), we simulate three policy scenarios—business as usual, emissions trading scheme (ETS) with regulated electricity prices, and ETS with market-based pricing—under a unified emissions cap. The results demonstrate that electricity market liberalization enhances carbon pricing efficiency by eliminating price distortions, leading to a 0.06% increase in GDP and a 12% reduction in emission abatement costs. However, liberalization also raises electricity and consumer prices, disproportionately affecting rural and low-income households. These findings underscore the need to balance economic efficiency and social equity in sustainability-oriented energy reforms. Our analysis emphasizes the importance of designing inclusive and just transition policies to ensure that carbon mitigation efforts support long-term environmental, economic, and social sustainability goals.

Suggested Citation

  • Ning Yan & Shenhai Huang & Yan Chen & Daini Zhang & Qin Xu & Xiangyi Yang & Shiyan Wen, 2025. "Co-Benefits of Carbon Pricing and Electricity Market Liberalization: A CGE Case Study," Sustainability, MDPI, vol. 17(13), pages 1-18, June.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:13:p:5992-:d:1690745
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/17/13/5992/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/17/13/5992/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. repec:aen:journl:2005se-a03 is not listed on IDEAS
    2. Shenhai Huang & Chao Du & Xian Jin & Daini Zhang & Shiyan Wen & Zhijie Jia, 2023. "The Impact of Carbon Emission Trading on Renewable Energy: A Comparative Analysis Based on the CGE Model," Sustainability, MDPI, vol. 15(16), pages 1-16, August.
    3. Song, Xiangnan & Pan, Chuwen & Yuan, Hongping & Wang, Zeyu, 2024. "Does emission trading system (ETS) deserve further promotion in the building sector? Evidence from China," Renewable Energy, Elsevier, vol. 237(PB).
    4. Jia, Zhijie & Lin, Boqiang & Wen, Shiyan, 2022. "Electricity market Reform: The perspective of price regulation and carbon neutrality," Applied Energy, Elsevier, vol. 328(C).
    5. Koo, Bonsang, 2017. "Examining the impacts of Feed-in-Tariff and the Clean Development Mechanism on Korea's renewable energy projects through comparative investment analysis," Energy Policy, Elsevier, vol. 104(C), pages 144-154.
    6. Yu, Xianyu & Wu, Zemin & Wang, Qunwei & Sang, Xiuzhi & Zhou, Dequn, 2020. "Exploring the investment strategy of power enterprises under the nationwide carbon emissions trading mechanism: A scenario-based system dynamics approach," Energy Policy, Elsevier, vol. 140(C).
    7. Jia, Zhijie & Wen, Shiyan & Liu, Yu, 2022. "China's urban-rural inequality caused by carbon neutrality: A perspective from carbon footprint and decomposed social welfare," Energy Economics, Elsevier, vol. 113(C).
    8. Pollitt, Michael G., 2012. "The role of policy in energy transitions: Lessons from the energy liberalisation era," Energy Policy, Elsevier, vol. 50(C), pages 128-137.
    9. Štefan Bojnec & Alan Križaj, 2021. "Electricity Markets during the Liberalization: The Case of a European Union Country," Energies, MDPI, vol. 14(14), pages 1-21, July.
    10. David Newbery, 2005. "Electricity liberalisation in Britain: The quest for a satisfactory wholesale market design," The Energy Journal, , vol. 26(1_suppl), pages 43-70, June.
    11. Irene Arcelay & Aitor Goti & Aitor Oyarbide-Zubillaga & Tugce Akyazi & Elisabete Alberdi & Pablo Garcia-Bringas, 2021. "Definition of the Future Skills Needs of Job Profiles in the Renewable Energy Sector," Energies, MDPI, vol. 14(9), pages 1-23, May.
    12. Jia, Zhijie & Liu, Yu & Lin, Boqiang, 2024. "The impossible triangle of carbon mitigation policy," Energy Policy, Elsevier, vol. 189(C).
    13. Samuel Meng & Mahinda Siriwardana & Ying Shen, 2021. "The impact of a national carbon price on China," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 26(4), pages 601-618, October.
    14. Jia, Zhijie & Lin, Boqiang, 2022. "CEEEA2.0 model: A dynamic CGE model for energy-environment-economy analysis with available data and code," Energy Economics, Elsevier, vol. 112(C).
    15. Yuk-shing Cheng & Man-kit Chung & Kam-pui Tsang, 2023. "Electricity Market Reforms for Energy Transition: Lessons from China," Energies, MDPI, vol. 16(2), pages 1-16, January.
    16. Xin-gang, Zhao & Shuran, Hu & Hui, Wang & Haowei, Chen & Wenbin, Zhang & Wenjie, Lu, 2024. "Energy, economic, and environmental impacts of electricity market-oriented reform and the carbon emissions trading: A recursive dynamic CGE model in China," Energy, Elsevier, vol. 298(C).
    17. Zhang, Kun & Yao, Yun-Fei & Liang, Qiao-Mei & Saren, Gaowa, 2021. "How should China prioritize the deregulation of electricity prices in the context of carbon pricing? A computable general equilibrium analysis," Energy Economics, Elsevier, vol. 96(C).
    18. Silva, Patrícia Ferreira & Ferreira da Costa, Vinicius Braga & Dias, Bruno Henriques & Soares, Tiago André & Bonatto, Benedito Donizeti & Balestrassi, Pedro Paulo, 2024. "Socioeconomic impact of Brazilian electricity market liberalization: Forecasting and optimized tariff analysis," Energy, Elsevier, vol. 313(C).
    19. William Acworth & Mariza Montes de Oca & Anatole Boute & Carlotta Piantieri & Felix Christian Matthes, 2020. "Emissions trading in regulated electricity markets," Climate Policy, Taylor & Francis Journals, vol. 20(1), pages 60-70, January.
    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. Zhenjiang Shi & Mengmeng Zhang & Lei An & Yan Lu & Daoshun Zha & Lili Liu & Tiantian Feng, 2025. "Research on the Synergistic Mechanism Design of Electricity-CET-TGC Markets and Transaction Strategies for Multiple Entities," Sustainability, MDPI, vol. 17(15), pages 1-23, August.

    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. Yuqi, Zhang & Bing, Wang & Yuquan, Chen & Zhen, Zhong & Qiang, Huang, 2025. "Environmental and economic optimization of office building microgrid based on carbon-electricity market and improved Harris Hawks optimization algorithm," Energy, Elsevier, vol. 332(C).
    2. Li, Yangfan & Zhang, Xiaoyun, 2023. "Recycling scheme of carbon pricing for inclusive decarbonization and energy transition: A recursive computable general equilibrium analysis in China," Renewable Energy, Elsevier, vol. 217(C).
    3. Lin, Boqiang & Wang, Siquan, 2023. "The performance of specialized and oriented diversified firms: A comparative analysis from the targeted expansion of renewable energy business of listed companies," International Review of Financial Analysis, Elsevier, vol. 89(C).
    4. Li, Xueqin & Zheng, Zhuoji & Luo, Beier & Shi, Daqian & Han, Xianfeng, 2024. "The impact of electricity sales side reform on energy technology innovation: An analysis based on SCP paradigm," Energy Economics, Elsevier, vol. 136(C).
    5. Li, Xiaoyu & Yao, Ye & Chen, Zhenni & Du, Huibin, 2025. "Analyzing the environmental and economic impact of carbon pricing policy based on an improved dynamic CGE model: Incorporating demographic characteristics of resident," Structural Change and Economic Dynamics, Elsevier, vol. 74(C), pages 630-644.
    6. Yao Wang & Qiang Yang & Xuenan Wu & Ruichen Wang & Tilei Gao & Yuntong Liu, 2023. "A Study of Trends in Low-Energy Development Patterns in China: A Data-Driven Approach," Sustainability, MDPI, vol. 15(13), pages 1-18, June.
    7. Tang, Longhai & Mahmood, Hamid & Khalid, Samia, 2025. "Examining the impact of structural reforms on energy poverty: A threshold effect of energy affordability," Energy, Elsevier, vol. 320(C).
    8. Jia, Zhijie & Liu, Yu & Wu, Rongxin & Wen, Shiyan & Zhang, Hongzhi & Lin, Boqiang, 2025. "Optimal policy packages under policy and preference heterogeneities to address climate change," Energy Economics, Elsevier, vol. 145(C).
    9. Xin-gang, Zhao & Shuran, Hu & Hui, Wang & Haowei, Chen & Wenbin, Zhang & Wenjie, Lu, 2024. "Energy, economic, and environmental impacts of electricity market-oriented reform and the carbon emissions trading: A recursive dynamic CGE model in China," Energy, Elsevier, vol. 298(C).
    10. Gao, Zhiyuan & Zhao, Ying & Li, Lianqing & Hao, Yu, 2024. "Economic effects of sustainable energy technology progress under carbon reduction targets: An analysis based on a dynamic multi-regional CGE model," Applied Energy, Elsevier, vol. 363(C).
    11. Ning Yan & Shenhai Huang & Yan Chen & Daini Zhang & Qin Xu & Xiangyi Yang & Shiyan Wen, 2025. "The Impact of Carbon Trading Market on the Layout Decision of Renewable Energy Investment—Theoretical Modeling and Case Study," Energies, MDPI, vol. 18(15), pages 1-30, July.
    12. Silva, Walquiria N. & Rego, Erik Eduardo & Vieira, Giovani G.T.T. & Lourenço, Luís F.N. & Salles, Mauricio B.C., 2025. "An overview of Brazil's electricity market: Planning, dispatch models, pricing, and modernization," Utilities Policy, Elsevier, vol. 96(C).
    13. Shenhai Huang & Chao Du & Xian Jin & Daini Zhang & Shiyan Wen & Zhijie Jia, 2023. "The Impact of Carbon Emission Trading on Renewable Energy: A Comparative Analysis Based on the CGE Model," Sustainability, MDPI, vol. 15(16), pages 1-16, August.
    14. Jia, Zhijie, 2023. "The hidden benefit: Emission trading scheme and business performance of downstream enterprises," Energy Economics, Elsevier, vol. 117(C).
    15. Xuesong Sun & Chunwang Zhang & Qi Tan, 2023. "Factors Influencing the Coordinated Development of Urbanization and Its Spatial Effects: A Case Study of Beijing-Tianjin-Hebei Region," Sustainability, MDPI, vol. 15(5), pages 1-19, February.
    16. Shenhai Huang & Chao Du & Xian Jin & Daini Zhang & Shiyan Wen & Yu’an Wang & Zhenyu Cheng & Zhijie Jia, 2022. "The Boundary of Porter Hypothesis: The Energy and Economic Impact of China’s Carbon Neutrality Target in 2060," Energies, MDPI, vol. 15(23), pages 1-18, December.
    17. Xuesong Sun & Muru Li & Suyun Hou & Chunwang Zhang, 2023. "Research on the Spatial Network Characteristics, Synergistic Emission Reduction Effects and Mechanisms of Carbon Emission in Beijing–Tianjin–Hebei Urban Agglomeration," Sustainability, MDPI, vol. 15(10), pages 1-16, May.
    18. Schreiner, Lena & Madlener, Reinhard, 2022. "Investing in power grid infrastructure as a flexibility option: A DSGE assessment for Germany," Energy Economics, Elsevier, vol. 107(C).
    19. Karsten Neuhoff & Sophia Rüster & Sebastian Schwenen, 2015. "Power Market Design beyond 2020: Time to Revisit Key Elements?," Discussion Papers of DIW Berlin 1456, DIW Berlin, German Institute for Economic Research.
    20. Yagi, Chihiro & Takeuchi, Kenji, 2024. "Electricity storage or transmission? Comparing social welfare between electricity arbitrages," Energy Economics, Elsevier, vol. 140(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    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:gam:jsusta:v:17:y:2025:i:13:p:5992-:d:1690745. 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: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    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.