Regulatory effect of carbon pricing on the negative impacts of coal phase-out

Negative impacts such as unstable power supply and stranded coal power assets caused by coal phase-out have frequently occurred. As an important regulatory measure to achieve the goal of carbon neutrality, whether carbon pricing can effectively deal with the negative impacts of coal phase-out has become a key issue of widespread concern. In this paper, a hybrid bottom-up real option (RO) and top-down system dynamic (SD) model is developed to assess the negative impacts of coal phase-out in China. The simulation results based on different carbon pricing mechanisms indicate that the total stranded coal power asset in China may range between 1.4 and 1.7 trillion yuan under all simulation scenarios. Regardless of the carbon pricing mechanisms adopted, China will probably encounter short-term electricity shortages before 2027. The aggressive carbon pricing mechanism may not necessarily decrease the value of stranded assets but could potentially escalate electricity shortage risk between 2033 and 2040. Compared with the altering initial carbon price or carbon price drift rate, the adjustment of the free carbon quota reduction rate may be a more feasible approach to achieving carbon neutrality target, and it will lead to a lower electricity shortage risk and stranded coal power assets in China.