Co-Benefits of Carbon Pricing and Electricity Market Liberalization: A CGE Case Study

Ning Yan, Shenhai Huang, Yan Chen, Daini Zhang, Qin Xu, Xiangyi Yang and Shiyan Wen ()
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Ning Yan: Jiaxing Hengchuang Electric Power Design & Institute Co., Ltd., Jiaxing 314100, China
Shenhai Huang: Jiaxing Hengchuang Electric Power Design & Institute Co., Ltd., Jiaxing 314100, China
Yan Chen: Jiaxing Hengchuang Electric Power Design & Institute Co., Ltd., Jiaxing 314100, China
Daini Zhang: Jiaxing Hengchuang Electric Power Design & Institute Co., Ltd., Jiaxing 314100, China
Qin Xu: School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710049, China
Xiangyi Yang: School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710049, China
Shiyan Wen: School of Economics, Xi’an University of Finance and Economics, Xi’an 710003, China

Sustainability, 2025, vol. 17, issue 13, 1-18

Abstract: This study explores how carbon pricing and electricity market liberalization jointly contribute to China’s sustainable energy transition. Using a dynamic computable general equilibrium (CGE) model (CEEEA2.0), we simulate three policy scenarios—business as usual, emissions trading scheme (ETS) with regulated electricity prices, and ETS with market-based pricing—under a unified emissions cap. The results demonstrate that electricity market liberalization enhances carbon pricing efficiency by eliminating price distortions, leading to a 0.06% increase in GDP and a 12% reduction in emission abatement costs. However, liberalization also raises electricity and consumer prices, disproportionately affecting rural and low-income households. These findings underscore the need to balance economic efficiency and social equity in sustainability-oriented energy reforms. Our analysis emphasizes the importance of designing inclusive and just transition policies to ensure that carbon mitigation efforts support long-term environmental, economic, and social sustainability goals.

Keywords: sustainability; carbon pricing; electricity market liberalization; emissions trading scheme (ETS); CGE model; climate policy; China (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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