The robustness of low-carbon policies during China’s electricity reform

The progress in decarbonization that China has made coincides with its market liberalization process. However, whether the implemented and planned low-carbon policies designed before the reform will lose their effectiveness after the reform has not been analyzed. In this research, we introduce a new dimension of policy assessment into the discussion about low-carbon policies, namely, policy robustness during an economic transition. Here, robustness is used to assess whether a low-carbon policy can maintain its functions and effectiveness during a market reform. We develop a framework and the associated metrics for policy robustness analysis. We apply our framework to analyze China’s fuel efficiency improvement project (FEIP) and compare the FEIP with the pricing-carbon policy (PCP) in two provinces, Guangdong and Fujian. The analysis shows that both the FEIP and PCP will lose some of their effectiveness during the market reform. However, implementing the PCP is more robust than implementing the FEIP because the PCP is able to promote the fuel efficiency improvement of cost-competitive coal-fired generators, whose market share will expand after the reform. The FEIP is particularly nonrobust in Fujian because of the distribution of the coal heat rates of Fujian’s power plants. We further conclude that overinvestment in generation capacity leads to less robustness of both the FEIP and PCP during the reform. There has already been overinvestment in China’s power generation capacity, but the current fuel efficiency policies can be seriously nonrobust and cause significant efficiency losses during electricity reform.