| dc.description.abstract |
On July 16, 2021, the Chinese Emissions Trading Scheme (ETS) opened trading. Covering
more than 4 billion tons of carbon dioxide, the ETS accounts for 40% of China’s national
carbon emissions and is the largest carbon market in the world by volume. However,
as it stands, the cost of carbon is not being reflected in electricity prices for
consumers due to government regulation of the Chinese power market. This study examines
the relationship between the Chinese ETS design and power market design to make a
recommendation to facilitate the pass-through of carbon costs to consumers. Specifically,
the study confronts the feasibility of two potential reform pathways for price pass-through,
(1) power market deregulation, and (2) evolution in design of the Chinese emissions
trading scheme. Comparative case study analysis of price-signaling methods in the
Republic of Korea and the European Union informs the ultimate recommendation. The
findings indicate that Chinese ETS design should optimize long-term coordination and
mutual efficiency between the Chinese ETS and power market by implementing the regulation
of indirect emissions with an upstream coefficient in the short-term to respond to
the long-term gradual deregulation of the Chinese power market.
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