New Mechanism Proposed to Promote Green and Low-Carbon Transformation
In an effort to further promote the green and low-carbon transformation, Chinese researchers have proposed a new mechanism that aims to build an electricity-carbon synergy. This mechanism, developed by the Double Carbon Technology Research and Development Center and the Research and Development Department of China Securities Futures, intends to strengthen the connection between the electricity market and the carbon market.
The carbon market in China has seen significant progress in recent years, with the power spot pilot showing promising results. However, there are still challenges to overcome, such as insufficient market liquidity and distorted price signals. To address these issues, the researchers suggest consolidating the foundation of the carbon trading system and designing an open and effective market mechanism. They also emphasize the importance of listing carbon emission rights futures to accelerate the development of the carbon market.
Currently, the two markets operate independently, but there is a logical basis for strengthening their connection. By prioritizing the clearing and consumption of new energy in the electricity market, the carbon emission levels of the power system can be reduced, aligning with the goals of the carbon market. This coordinated development of the two markets can contribute to green transformation, emission reduction, and lower consumption costs.
To promote the improvement of the institutional framework of the carbon market, the researchers suggest relaxing trading constraints and strengthening the legal basis. The draft “Interim Regulations on the Administration of Carbon Emissions Trading” is currently pending review and is expected to provide a clear development path for the national carbon market.
Another aspect that needs attention is the inclusion of institutional investors in the carbon market. While they can contribute to increased market activity and depth, excessive speculation should be avoided. Balancing market liquidity and risk management is crucial to maintain stability.
In addition to the carbon market, the researchers emphasize the importance of promoting carbon derivatives, such as carbon emission rights futures. These derivatives can help manage the risk of carbon price fluctuations and improve market transparency and efficiency. Learning from the experience of the European Union, China can actively develop its own carbon derivatives market to address the challenges faced in the initial stages of the national carbon market.
Lastly, the researchers emphasize the need for a reasonable transmission of carbon and electricity prices. The development of the carbon market will impact the cost of fossil energy power generation and, consequently, affect the clearing price of the electricity market. The structure of the electricity market, the transmission rate of carbon costs, and the power purchase strategy of enterprises all play a role in determining the transmission effect. Understanding these factors is crucial to ensure a smooth transition towards a greener and low-carbon economy.
Overall, the proposed electricity-carbon synergy mechanism shows great potential for promoting green and low-carbon transformation in China. By strengthening the connection between the electricity market and the carbon market, the country can further reduce emissions, promote sustainable development, and contribute to global efforts to combat climate change.