Managing Impacts of the Carbon Emissions Trading

As electricity price regulation in China hinders the transmission of carbon costs to electricity consumers, whether and how the national carbon emissions trading (CET) market should cover electricity indirect carbon emissions (EICEs) are critical practical issues. Using a computable general equilibrium (CGE) model, this paper investigates the impacts of the CET market covering EICEs and applying different EICE accounting methods, providing new insights for CET market policy design. The results show that: (1) Although the CET market covering EICEs raises regulated sectors' carbon and production costs and reduces sectoral outputs and GDP, it is conducive to reducing electricity and fossil energy consumption, optimizing power supply structure, and thus reducing direct and indirect carbon emissions. (2) Compared with the locational EICE accounting method, the market-based method can alleviate the negative economic impacts caused by covering EICEs and significantly reduce carbon emissions at lower costs. Based on the findings of this paper, the authors propose targeted policy recommendations.