IEA-中国碳交易市场在电力行业低碳转型中的作用The_Role_of_China_ETS_in_Power_Sector_Decarbonisation-202104

The Role of China’s ETS in Power Sector DecarbonisationThe Role of China’s ETS in Power Sector Decarbonisation Abstract PAGE | 2 IEA. All rights reserved. Abstract The People’s Republic of China (“China”) officially launched its national emissions trading system (ETS) in 2017, and it will come into operation in 2021. Initially covering the power sector, which accounts for over 40% of China’s energy-related CO 2 emissions, the ETS is set to subsequently be expanded to other energy- intensive sectors. China’s national ETS could be an important market-based instrument to help the country meet its recently enhanced climate goals to have CO 2 emissions peak before 2030 and achieve carbon neutrality before 2060. This report explores how China’s ETS can spur emissions reductions from electricity generation and support power sector transformation. It builds on understanding of power sector development and policy trends and relies on in- depth national and provincial scenario modelling of China’s power system from 2020 to 2035. This study also analyses how the ETS’s output- and rate-based design affects overall power sector emissions, technologies and costs, and regional distribution. Finally, it recommends ways China’s ETS can play a stronger role in incentivising cost-effective and structural power sector decarbonisation to support the country’s long-term climate ambitions. The Role of China’s ETS in Power Sector Decarbonisation Acknowledgements PAGE | 3 IEA. All rights reserved. Acknowledgements, contributors and credits The Role of China’s ETS in Power Sector Decarbonisation is a joint analysis prepared by the Environment and Climate Change Unit (ECC) in the Energy Environment Division (EED) of the International Energy Agency (IEA) and the Institute of Energy, Environment and Economy (3E) of Tsinghua University. Cyril Cassisa (IEA), Xiushan Chen (IEA) and Da Zhang (Tsinghua) co-ordinated the project. The main authors of the report are Cyril Cassisa, Xiushan Chen and Insa Handschuch from the IEA, and Da Zhang and Hongyu Zhang from the Tsinghua 3E Institute. Xiliang Zhang, Director of the Tsinghua 3E Institute, provided invaluable guidance to the project and analysis. Fengquan An, Senior China Advisor; Sara Moarif, Unit Head of ECC; Tom Howes, Division Head of EED; and Mechthild Wörsdörfer, Director for Sustainability, Technology and Outlooks (STO) provided valuable feedback and overall guidance to the project. Valuable contributions and feedback were also offered by other current and former IEA and Tsinghua colleagues: Luca Lo Re, Laszlo Varro, Brent Wanner, Alan Searl, Rebecca McKimm, Julia Guyon, Francesco Mattion, Chenlu Cheng, Heymi Bahar, Zoe Hungerford, César Alejandro Hernandez, Randi Kristiansen, Peerapat Vithayasrichareon, Niels Berghout, Jihyun Lee, Jean-Baptiste Le Marois, Uwe Remme, Daniel Wetzel, Ermi Miao, Heng Liang and Huilin Luo. This analysis was carried out with the support of the IEA Clean Energy Transitions Programme. The authors would like to thank the funders of the Clean Energy Transitions Programme, particularly the Agence française de développement (AFD). The authors are also grateful for valuable comments and feedback from external experts, including: Shengmin Yu (National Center for Climate Change Strategy and International Cooperation, NCSC), Robert Stowe (Harvard University), Rachel Mok (World Bank), Felix Matthes (Oeko Institut), Kristian Wilkening (GIZ), Yan Qin (Refinitiv), Can Wang (Tsinghua University), Jingjie Zhang (China Electricity Council), Yue Dong (EF-China), Alistair Ritchie (ASPI), Hervé Aloncle (AFD), Jérémy Gasc (AFD), Daniel Nachtigall (OECD), David Fischer (PWC), Ernst Kuneman (ICAP), Ying Fan (Beihang University), Yongsheng Feng (CASS), Hao The Role of China’s ETS in Power Sector Decarbonisation Acknowledgements PAGE | 4 IEA. All rights reserved. Wang (EDF-China), Zhao He (China Electric Power Planning and Engineering Institute), Jiahai Yuan (North China Electric Power University), Jiang Lin (Lawrence Berkeley National Laboratory), Johannes Enzmann (European Commission), Ying Li (China Renewable Energy Engineering Institute), Philip Andrews-Speed (National University of Singapore), Xavier Chen (Beijing Energy Club), Xin Xu (NEA), Dechen Zhu (China Huadian Corporation) and Neil Hirst (Imperial College London). Kristine Douaud edited the report. The authors would also like to thank the IEA Communications and Digital Office (CDO), particularly Astrid Dumond, Christopher Gully, Clara Vallois and Therese Walsh for providing valuable editorial and publishing support.The Role of China’s ETS in Power Sector Decarbonisation Table of contents PAGE | 5 IEA. All rights reserved. Table of contents Executive summary 8 Key findings 10 Policy recommendations 16 Chapter 1: The ETS in an evolving power sector . 21 ETS development in China 21 China’s power sector generates one-quarter of global electricity 24 Power market reform 27 Renewables deployment 29 System integration and flexibility sources 31 CCUS development . 33 Chapter 2: China’s ETS supports power sector transformation and the peaking of CO 2 emissions 36 Modelling approach and key assumptions . 36 Scenario design . 38 Overview of power sector development under the No-Carbon-Pricing Scenario 41 The ETS could accelerate national-level power sector decarbonisation . 44 Interregional distributional effects of the ETS 59 Chapter 3: Allowance auctioning drives deeper power sector decarbonisation 65 References 72 General annex . 75 Annex A - REPO model and modelling work . 75 Abbreviations and acronyms 81 Glossary . 82 The Role of China’s ETS in Power Sector Decarbonisation Table of contents PAGE | 6 IEA. All rights reserved. List of figures Figure 1 CO2 emissions from electricity generation by scenario, 2020-2035 10 Figure 2 Factors yielding additional emissions reductions in the ETS Scenario compared with the No-Carbon-Pricing Scenario, 2025-2035 . 11 Figure 3 Factors yielding additional emissions reductions in the ETS Auctioning Scenario compared with the No-Carbon-Pricing Scenario, 2025-2035 15 Figure 1.1 Timeline of ETS development in China 22 Figure 1.2 STEPS global electricity generation outlook by region, 2018-2040 . 24 Figure 1.3 China’s electricity generation and related CO2 emissions, 2018 . 26 Figure 1.4 Annual renewable capacity additions by region, 2010-2019 29 Figure 1.5 Key characteristics of the different phases of system integration 31 Figure 2.1 CO2 emissions intensity by technology in 2015 and benchmark design for 2020 . 39 Figure 2.2 Electricity generation and related CO2 emissions in the No-Carbon-Pricing Scenario, 2020-2035 42 Figure 2.3 Capacity changes in coal- and gas-fired power capacity in the No-Carbon-Pricing Scenario, 2020-2035 . 43 Figure 2.4 CO2 emissions from electricity generation and allowance prices in the No-Carbon-Pricing and ETS scenarios, 2020-2035 . 44 Figure 2.5 Factors yielding additional emissions reductions in the ETS Scenario compared with the No-Carbon-Pricing Scenario, 2025-2035 46 Figure 2.6 Net allowance balance by coal technology in the ETS Scenario, 2020 and 2025 . 47 Figure 2.7 Electricity generation by unabated coal-fired power technology in the No-Carbon-Pricing and ETS scenarios, 2020-2035 . 48 Figure 2.8 Capacity changes by coal-fired power technology in the No-Carbon-Pricing and ETS scenarios, 2020-2035 49 Figure 2.9 Net allowance balance by coal-fired power technology in the ETS Scenario, 2030 and 2035 . 50 Figure 2.10 LCOE of ultra-supercritical and CCS-equipped coal-fired power in provinces with low coal prices (e.g. Inner Mongolia) in the ETS Scenario, 2020-2035 . 51 Figure 2.11 Coal-fired power generation and capacity mixes in the No-Carbon-Pricing and ETS scenarios, 2025-2035 52 Figure 2.12 Generation differences between the ETS and No-Carbon-Pricing scenarios, 2025-2035 53 Figure 2.13 Average CO2 cost by technology in the ETS Scenario, 2020-2035 . 54 Figure 2.14 Average generation costs by technology in the ETS Scenario, 2035 55 Figure 2.15 Unit electricity cost and CO2 emissions from electricity generation in the No-Carbon-Pricing and ETS scenarios, 2020-2035 . 56 Figure 2.16 Additional system costs in the ETS Scenario and Intensity Target Case compared with the No-Carbon-Pricing Scenario, 2025 58 Figure 2.17 Fossil power capacity by grid region in the No-Carbon-Pricing Scenario, 2020 and 2035 . 60 Figure 2.18 Coal-fired power capacity by grid region in the No-Carbon-Pricing and ETS scenarios, 2035 62 Figure 2.19 CO2 emissions from electricity generation by grid region in the No-Carbon-Pricing and ETS scenarios, 2020 and 2035 63 Figure 2.20 Net allowance balance by grid region in the ETS Scenario, 2020 and 2035 . 64 Figure 3.1 CO2 emissions from electricity generation and allowance price by scenario, 2020-2035 67 Figure 3.2 Capacity changes by coal-fired power technology in the ETS and ETS Auctioning scenarios, 2020-2035 . 68 The Role of China’s ETS in Power Sector Decarbonisation Table of contents PAGE | 7 IEA. All rights reserved. Figure 3.3 Electricity generation by technology in the ETS and ETS Auctioning scenarios, 2020-2035 . 69 Figure 3.4 Factors yielding additional emissions reductions in the ETS and ETS Auctioning scenarios compared with the No-Carbon-Pricing Scenario, 2025-2035 70 Figure 3.5 Revenues and additional system costs from auctioning, 2025-2035 . 70 Figure 3.6 Unit electricity cost by cost component in the ETS Auctioning Scenario and total unit electricity cost in the ETS Scenario, 2020-2035. 71 Figure A.1 REPO model framework . 76 List of tables Benchmark design assumptions for 2020 39 Scenario design 40 Design of the Intensity Target Case . 57 Scenario designs for ETS with free allocation and with auctioning 66 Table A.1 China power sector’s 6 grid regions and REPO model’s 32 provincial areas 76 Table A.2 Cost assumptions by technology . 78 Table A.3 Coal price assumptions by provincial area, 2020 and 2035 79 Table A.4 Fuel CO2 factors as per IPCC 2006 . 80 Table A.5 Assumptions of minimum capacity levels for wind and solar PV . 80 The Role of China’s ETS in Power Sector Decarbonisation Executive summary PAGE | 8 IEA. All rights reserved. Executive summary China recently made major announcements concerning its more ambitious medium- and long-term climate goals. At the United Nations General Assembly in September 2020, President Xi’s declaration of the People’s Republic of China’s (“China”) aims to have CO 2 emissions peak before 2030 and achieve carbon neutrality before 2060 set a ground-breaking vision for the country for the next four decades. China also announced in December 2020 that it would enhance its Nationally Determined Contribution (NDC) under the Paris Agreement for 2030, including reducing its CO 2 emissions intensity per unit of GDP by more than 65% from the 2005 level, increasing the share of non-fossil fuels in primary energy consumption to around 25% and expanding the total installed capacity of wind and solar power to over 1 200 GW. The 14th Five-Year Plan (FYP) stipulates formulation of an action plan to peak CO 2 emissions before 2030 and adoption of stronger policy measures in an effort to reach carbon neutrality before 2060. In this context, China s emissions trading system (ETS) can be an important market-based tool to help the country achieve its climate goals and energy transition. China’s national ETS was officially launched in 2017 and will come into operation in 2021 in the power sector, before being expanded to cover other energy-intensive sectors. Even in its initial phase, it will be the world’s largest ETS, covering coal- and gas-fired power plants that are responsible for over 40% of China’s CO 2 emissions from fossil fuel combustion. China’s ETS currently employs output- and rate-based allowance allocation, 1 whereas mass-based ETSs, such as the EU-ETS and California’s Cap-and-Trade Program, have a predetermined absolute cap on emissions levels covered. Allowances in China’s ETS are allocated based on a unit’s actual generation during the compliance period (e.g. total MWh of electricity generated in 2019-2020) and predetermined emissions intensity benchmarks for each fuel and technology (e.g. CO 2 emissions per MWh set for each type of coal- and gas-fired power plant). Allowances are currently allocated for free, with the introduction of auctions a future possibility (MEE, 2021). At the end of 2020, the Ministry of Ecology and Environment (MEE) released the allowance allocation plan for the power sector, with the first compliance obligations covering 2019 and 2020 emissions (MEE, 2020a). 1 A rate-based ETS is often termed a tradable performance standard. The Role of China’s ETS in Power Sector Decarbonisation Executive summary PAGE | 9 IEA. All rights reserved. This report explores how China’s ETS can spur emissions reductions from electricity generation and support power sector transformation. It builds on understanding of power sector development and policy trends and relies on in- depth national and provincial scenario modelling of China’s power system from 2020 to 2035. Analysis is based on a capacity expansion and dispatch model that minimises total power system costs 2 under technical, resource and policy constraints. The model assumes economic dispatch for China’s power system from 2025 onwards and expanded interprovincial trade. For wind and solar PV, feed-in tariffs (FITs) for newly installed capacity are assumed to be phased out after 2020, but new policies are assumed to be implemented to support continuous capacity expansion. The model implements the ETS with an output- and rate-based allocation design, with the number of allowances calculated according to electricity generation and technology-specific benchmarks for four categories of coal- and gas-fired units. 3 The allowance price, which is an output of the model, reflects the marginal cost of emissions abatement that minimises total system costs to meet the allocated number of allowances. The allowance price depends strongly on the stringency of the benchmarks. This study analyses three scenarios to evaluate potential ETS impacts on China’s power sector. • The No-Carbon-Pricing Scenario is the counterfactual scenario against which the role of the ETS is evaluated. 4 The No-Carbon-Pricing Scenario incorporates no specific policies to control CO 2 emissions (i.e. neither an ETS nor command- and-control policies such as emissions caps or energy consumption standards), but it assumes economic dispatch from 2025 and policy support for wind and solar PV capacity deployment. • The ETS Scenario is the main scenario for assessing the role of China’s ETS in the power sector. In addition to the assumptions in the No-Carbon-Pricing Scenario, the ETS Scenario implements a national ETS with free, output-based allowance allocation for electricity generation from 2020 onwards. It also assumes that benchmarks for all coal-fired technologies become more stringen