Synergy effects of the energy quota trading system and carbon emissions trading system: a case study of China

Abstract

China has implemented the energy quota trading system (EQTS) and carbon emissions trading system (CETS) to cope with climate change. There is an urgent need for careful research on the synergy effects of EQTS and CETS to avoid conflicts between the systems and support scientific policymaking. Therefore, using a system dynamics model, this paper takes China's power sector as an example and studies the synergy effects of EQTS and CETS in quota allocation and compliance. The results show that the synergy mechanisms of the two systems can achieve synergy effects. (1) The quota allocation synergy mechanism can reasonably increase the production costs of thermal power manufacturers and promote energy conservation and emission reduction, with a maximum reduction of 2.9 % in energy consumption and carbon emissions compared to the benchmark scenario. (2) The quota allocation synergy mechanism avoids the excessive increase in compliance costs for thermal power manufacturers caused by the simultaneous implementation of the two systems of paid allocations, which seriously affects thermal power investment and generation, and drives up the electricity price. It also alleviates the negative impact of the EQTS on the carbon market performance. (3) The compliance synergy mechanism reduces the compliance cost of EQTS and CETS for thermal power manufacturers and increases thermal power generation. In addition, the simultaneous implementation of the quota allocation synergy and compliance synergy mechanisms of EQTS and CETS can also optimize the power supply structure and reduce the energy intensity and carbon emission intensity of the power sector.