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

Author

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  • 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
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    References listed on IDEAS

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