THE EFFECTIVE BENCHMARK SELECTION MODEL AND SIMULATION IN THE POWER SECTOR OF CHINA’S ETS

Abstract

In 2019, the National Carbon Emission Trading Scheme (ETS) of China’s power generation industry was officially launched, and the free allocation and benchmark are the primary ways for allowance allocation in the first phase of the national ETS. The carbon allowance allocation method is the basis for the effective operation of the ETS. In order to evaluate China’s carbon allowance allocation method published by policy, we constructed a selection model of the effective benchmark and combined with three different scenarios such as no generation-right trading market, incomplete generation-right trading market and complete generation-right trading market to simulate the operation of the national ETS in China’s power generation industry. The study shows that: (1) according to the current benchmark value published by policy, the carbon allowance supply will exceed demand in all scenarios. (2) Regardless of the scenario, in order to balance the supply and demand of allowance in the ETS, the effective benchmark value should be adjusted to 35th–50th quantile of the carbon emissions per unit power generation.