Chinese power companies adapt quickly to challenges of emissions trading

2 September 2014

China’s 12th Five Year Plan (2011-2015) includes a call to “gradually develop a carbon trading market”. In preparation, five cities and two provinces were directed to develop and implement pilot emission trading schemes (ETS).

To help influence the design of China’s national ETS and supplement the learning process that started with the pilot projects, the International Energy Agency joined with the China Electricity Council, the China Beijing Environment Exchange and the Environmental Defense Fund to develop and run a simulated ETS for the Chinese power sector.

The simulation included four scenarios to test different policy options in which power companies from across the country had to meet challenging generation and carbon requirements. The IEA saw that participants quickly developed and refined tactics, altering the output of their plants and building new ones as needed. Those that traded more carbon tended to be more successful.

The results from the four scenarios suggested how ETS market design affects company behaviour, market performance and ultimate outcomes, providing input for how officials might approach ETS design choices.

To download the report, please click here.

Project partner China Beijing Environmental Exchange has generously provided a Chinese translation of the executive summary: 排放交易在中国——电力行业碳排放交易模拟 

Photo of Chinese power plant control room: © Yuangeng Zhang / Shutterstock.com