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Renewable Portfolio Standards, Carbon Emissions Trading and China Certified Emission Reduction: The Role of Market Mechanisms in Optimizing China’s Power Generation Structure

Author

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  • Shining Yang

    (School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

  • Feng Mi

    (School of Economics and Management, Beijing Forestry University, Beijing 100083, China)

Abstract

To promote the low-carbon energy transition, China is implementing renewable energy (RE) development policies such as renewable portfolio standards (RPSs), carbon emissions trading (CET) and China certified emission reduction (CCER) trading. However, using China’s current CET price to accurately reflect market information is difficult, which is not conducive to guiding low-carbon investment. Additionally, as RE power enters the era of grid parity, more revenues are needed to maintain generator operations. Therefore, in this study, we construct a system dynamics model to explore whether and how market mechanisms can optimize the power generation structure, and sensitivity analyses of CCER policy parameters are carried out to identify the impact and scope for improvement. The results show that (1) the market mechanism, especially the RPS mechanism, adjusts the profits of power generators, eliciting a surge in RE generation and optimizing the power generation structure; (2) CET and CCER prices change in the opposite direction of tradable green certificates (TGCs) and show a significant improvement effect on the on-grid electricity price; (3) successful implementation of the CCER mechanism can effectively energize the CET market. A lower CCER benchmark price, higher CCER offset ratio and CET fines can accelerate the growth of CCER and CET prices. Therefore, the government should promote TGC separation from power trading and rationally design CCER policies by lowering the CCER credit ratio, increasing CET fines, and expanding CCER market capacity to ensure that the guiding role of the market mechanism is better utilized.

Suggested Citation

  • Shining Yang & Feng Mi, 2025. "Renewable Portfolio Standards, Carbon Emissions Trading and China Certified Emission Reduction: The Role of Market Mechanisms in Optimizing China’s Power Generation Structure," Energies, MDPI, vol. 18(4), pages 1-23, February.
    • Handle: RePEc:gam:jeners:v:18:y:2025:i:4:p:894-:d:1590235
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    References listed on IDEAS

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