Enhancing China’s ETS for carbon neutrality: focus on power sector co-ordinating climate and renewable energy policy

The pace of emissions reductions of China over the coming decades will be an important factor in global efforts to limit global warming to 1.5°C. The power sector is central to achieving China’s stated climate ambition of peaking CO2 emissions before 2030 and achieving carbon neutrality before 2060. Accelerating the sector’s decarbonisation requires a well-coordinated policy mix. This report responds to the Chinese government’s invitation to the IEA to co-operate on carbon emissions trading systems (ETS) and synergies across energy and climate policies. It shows that an enhanced ETS could lead the electricity sector toward an emissions trajectory that is in line with China’s carbon neutrality target. This report also explores the interactions and effects of China’s national ETS with its renewable energy policy in the electricity sector, namely renewable portfolio standards (RPS). It examines the impact of different Enhanced ETS Scenarios on CO2 emissions, generation mix, cost-effectiveness and interactions with RPS. The report concludes with a series of policy insights to inform China’s climate and energy debate.