Coordination of tradable carbon emission permits market and renewable electricity certificates market in China

Abstract

In order to assist the low-carbon transformation of power sector, China is planning to establish the national Tradable carbon emission permits (TEPs) market and Renewable Electricity Certificates (RECs) market under mandatory carbon caps and Renewable Portfolio Standards (RPS) targets simultaneously. How to coordinate the two markets and what the coordination effects are become key issues. In the present study, a multi-region multi-market equilibrium model considering both mechanisms was developed and applied to China as the case study. The model established the effective coordination interval between RPS targets and carbon caps in which the two markets can operate jointly. Then the coordinated markets were proved to be more economically efficient so long as the government pursues the dual goal of reducing carbon emission and promoting renewable energy in sync. Finally, the theoretical and practical advantages of market coordination compared with uncoupled operation of these markets, such as diversifying markets risk, keeping TEP/REC price at lower level, and reducing consumers' electricity purchase cost, were discussed.