How does carbon trading scheme affect carbon emissions and economic performance of electricity cross-subsidy reform: A recursive dynamic CGE model in China

Abstract

Currently, the reform of electricity cross-subsidies on the sales side is a crucial task in the market-oriented process. The resulting electricity prices, which reflect the true value, can not only enhance resource allocation efficiency but also contribute to increased carbon emissions. Consequently, it is imperative to actively pursue carbon trading policies to address this issue. In this study, we examined the reformed electricity prices for industrial and residential users by applying the Ramsey pricing model. Moreover, a recursive dynamic computable general equilibrium model is employed to analyze the carbon emissions and economic performance of the cross-subsidy reform under different settings of the quota decline scheme, quota allocation mode, and penalty mechanism within the carbon emissions trading scheme. The results demonstrate the following findings: (1) The calculated Ramsey prices for industrial and residential users are 0.541 and 0.792 yuan/kWh, respectively. (2) Implementation of the electricity cross-subsidy reform can lead to a significant increment in CO2 emission. However, it effectively improves national economic and social development and promotes the growth of gross domestic product, industrial output, and changes in residential consumption expenditure structure. (3) Carbon trading proves to be an effective means to achieve carbon emission reduction at a lower economic cost after the reform. Notably, the degree of impact is more sensitive to the carbon decline factor.