Quota Allocation for Carbon Emissions in China’s Electric Power Industry Based Upon the Fairness Principle

Abstract

As an essential measure to mitigate the CO2 emissions, China is constructing a nationwide carbon emission trading (CET) market. The electric power industry is the first sector that will be introduced into this market, but the quota allocation scheme, as the key foundation of market transactions, is still undetermined. This research employed the gross domestic product (GDP), energy consumption, and electric generation data of 30 provinces from 2001 to 2015, a hybrid trend forecasting model, and a three-indicator allocation model to measure the provincial quota allocation for carbon emissions in China′s electric power sector. The conclusions drawn from the empirical analysis can be summarized as follows: (1) The carbon emission peak in China′s electric power sector will appear in 2027, and peak emissions will be 3.63 billion tons, which will surpass the total carbon emissions of the European Union (EU) and approximately equal to 2/3 of the United States of America (USA). (2) The developed provinces that are supported by traditional industries should take more responsibility for carbon mitigation. (3) Nine provinces are expected to be the buyers in the CET market. These provinces are mostly located in eastern China, and account for approximately 63.65% of China′s carbon emissions generated by the electric power sector. (4) The long-distance electric power transmission shifts the carbon emissions and then has an impact on the quotas allocation for carbon emissions. (5) The development and effective utilization of clean power generation will play a positive role for carbon mitigation in China′s electric sector.

Study on China’s 2030 provincial carbon quota allocation scheme considering the positive and negative effects of historical emissions

“…Some scholars contend that historical carbon emissions have inflicted considerable harm on the environment, and the emitters should be accountable for their actions. Therefore, provinces with higher historical emissions should be allocated fewer carbon allowances (Pan, 2014a;Wei et al, 2014;Meng, 2018;Wang et al, 2018;Kong, 2019). However, other scholars maintain that the principle of the "grandfather law" should serve as the foundation for allocation.…”

“…Regarding historical emissions, there are two opposing viewpoints. One school of thought maintains that the higher the level of historical emissions, the greater the responsibility for carbon emission reduction, justifying the allocation of fewer carbon allowances (Wei et al, 2013;Pan, 2014b;Meng, 2018;Wang et al, 2018;Kong, 2019); while another advocates for grandfathering, whereby a larger quantity of historical emissions warrants an increase in carbon allowances (Zhou et al, 2023;Ye et al, 2019;Schmidt and Heitzig, 2014;Zhou, 2013;Shi et al, 2012;Goulder et al, 1999). The economic strength of each province is reflected in its ability to pay, which determines the extent to which emissions can be reduced.…”

Power Market Formation for Clean Energy Production as the Prerequisite for the Country’s Energy Security

“…The above situation can be corrected by the development of the market mechanisms for the sale of emissions of harmful substances by the power plants [47][48][49]. Based on this market, the initially allocated quotas for pollutants and greenhouse gases will be redistributed from a position of minimizing total costs.…”

Modeling and Simulation of Carbon Emission-Related Issues

“…The electric power industry is the first sector that was introduced into the Carbon Emissions Trading market, which is being constructed in China. Meng et al [21] utilized a hybrid trend forecasting model and a three-indicator allocation model to propose a quota allocation scheme for carbon emissions in China's electric power industry in 30 provinces from 2016 to 2030. The research findings indicated that nine provinces are expected to be the buyers in the Carbon Emissions Trading market.…”