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The power sector is one of the largest contributors to carbon emissions in China. In 2010, it accounted for nearly 50% of the country’s total CO₂ emissions. As a key area for emission reduction, the power industry achieved over 1 billion tons of cumulative CO₂ reductions during the Eleventh Five-Year Plan period. With the establishment of China's national carbon trading market, the power sector is set to play a central role in this emerging system. However, as the market develops, there are several important considerations that must be addressed.
First, the development of carbon trading in the power sector should support the continued growth of electricity demand. As China’s economy and living standards improve, electricity consumption is expected to rise steadily over the coming years. Carbon trading should not hinder this growth but instead promote a sustainable and healthy development path. This means setting realistic total emission caps, creating policies that encourage companies to cut emissions, and ensuring that the power industry can meet its targets without being held back by overly restrictive rules.
Second, the carbon trading system must take into account China’s unique energy resource distribution. Coal still dominates the power mix due to the country’s abundant coal reserves, and coal-fired power plays a vital role in maintaining energy security. In the early stages of the carbon market, regions or companies reliant on coal should not face excessively tight emission limits, as this could threaten their long-term viability. Additionally, the allocation of carbon quotas should reflect regional differences in energy resources, helping to optimize the national energy layout. For example, more carbon allowances could be allocated to the northwestern region, where energy resources are concentrated, to support the transmission of clean power to other parts of the country.
Third, the integration of carbon trading with electricity market reforms is essential. Currently, electricity prices in China are not fully market-driven, and power generation capacity is largely allocated by the government—unlike in many other countries. To align with this system, carbon emission allocations should be linked with electricity usage metrics. Moreover, the government should explore mechanisms to link retail electricity prices with carbon market prices, allowing carbon costs to be passed on to consumers and encouraging energy efficiency and emission reductions. As China continues to push forward with electricity market reforms, the carbon trading system must evolve in tandem with these changes to ensure a smooth transition toward a more efficient and environmentally friendly power sector.
In conclusion, while the power industry is at the forefront of China’s carbon trading initiatives, careful planning and policy coordination are necessary to ensure that the system supports both economic growth and environmental sustainability.