Can China's regional carbon market pilots improve power plants' energy efficiency?

Ning Zhang and Shuo Wang

Energy Economics, 2024, vol. 129, issue C

Abstract: Power plants are facing huge climate change and policy risks. This paper identifies the effect of China's carbon emissions trading system (ETS) on plants' energy efficiency. For this purpose, we use a two-step approach. In the first stage, we apply a Meta-frontier Stochastic Frontier Analysis (MSFA) method to estimate the total-factor energy efficiency of China's large coal power plants. In the second stage, we use a bootstrapped truncated difference-in-differences (BT-DID) estimator to investigate the ETS' impact on power plants. Results show that the ETS trading policy significantly improves participating plants' energy efficiency by 0.043, compared to non-ETS plants, while the announcement policy doesn't. Besides, several other methods are introduced to solve the potential autocorrelation and heteroskedasticity problems in the second-stage regression. Further, we unveil that the trading policy improves plants' energy efficiency by reducing coal consumption without affecting power generation. Finally, the heterogeneity analysis proves that China Southern Power Grid, local plants, and plants with high carbon prices benefit more from ETS.

Keywords: Carbon market; Energy efficiency; Chinese power plant; Meta-frontier SFA; Bootstrapped truncated difference-in-differences; Timing difference-in-differences (search for similar items in EconPapers)
JEL-codes: Q51 Q53 Q54 Q55 Q56 Q58 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:129:y:2024:i:c:s0140988323007600

DOI: 10.1016/j.eneco.2023.107262

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