[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v89y2016icp271-283.html
   My bibliography  Save this article

The impact of Chinese carbon emission trading scheme (ETS) on low carbon energy (LCE) investment

Author

Listed:
  • Mo, Jian-Lei
  • Agnolucci, Paolo
  • Jiang, Mao-Rong
  • Fan, Ying
Abstract
China is planning to introduce emission trading scheme (ETS) to decrease CO2 emission. As low carbon energy (LCE) will play a pivotal role in reducing CO2 emissions, our paper is to assess the extent and the conditions under which a carbon ETS can deliver LCE investment in China. We chose wind technology as a case study and a real-option based model was built to explore the impact of a number of variables and design features on investment decisions, e.g. carbon and electricity price, carbon market risk, carbon price floor and ceiling and on-grid ratio. We compute critical values of these variables and features and explore trade-offs among them. According to our work, a carbon ETS has a significant effect on wind power plant investment although it cannot support investment in wind power on its own. Carbon price stabilization mechanisms such as carbon price floor can significantly improve the effect of carbon ETS but the critical floor to support investment is still much higher than the carbon price in China pilot ETSs. Our results show that other policy measures will be needed to promote low-carbon energy development in China.

Suggested Citation

  • Mo, Jian-Lei & Agnolucci, Paolo & Jiang, Mao-Rong & Fan, Ying, 2016. "The impact of Chinese carbon emission trading scheme (ETS) on low carbon energy (LCE) investment," Energy Policy, Elsevier, vol. 89(C), pages 271-283.
    • Handle: RePEc:eee:enepol:v:89:y:2016:i:c:p:271-283
    DOI: 10.1016/j.enpol.2015.12.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421515302147
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2015.12.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gulbrandsen, Lars H. & Stenqvist, Christian, 2013. "The limited effect of EU emissions trading on corporate climate strategies: Comparison of a Swedish and a Norwegian pulp and paper company," Energy Policy, Elsevier, vol. 56(C), pages 516-525.
    2. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 113-147.
    3. Zhu, Lei & Fan, Ying, 2011. "A real options–based CCS investment evaluation model: Case study of China’s power generation sector," Applied Energy, Elsevier, vol. 88(12), pages 4320-4333.
    4. Wang, Qiang & Chen, Yong, 2010. "Barriers and opportunities of using the clean development mechanism to advance renewable energy development in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(7), pages 1989-1998, September.
    5. Brauneis, Alexander & Mestel, Roland & Palan, Stefan, 2013. "Inducing low-carbon investment in the electric power industry through a price floor for emissions trading," Energy Policy, Elsevier, vol. 53(C), pages 190-204.
    6. Ling, Yu & Cai, Xu, 2012. "Exploitation and utilization of the wind power and its perspective in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(4), pages 2111-2117.
    7. Zhao, Zhen-yu & Yan, Hong & Zuo, Jian & Tian, Yu-xi & Zillante, George, 2013. "A critical review of factors affecting the wind power generation industry in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 19(C), pages 499-508.
    8. Lam, J.C.K. & Woo, C.K. & Kahrl, F. & Yu, W.K., 2013. "What moves wind energy development in China? Show me the money!," Applied Energy, Elsevier, vol. 105(C), pages 423-429.
    9. Ouyang, Xiaoling & Lin, Boqiang, 2014. "Levelized cost of electricity (LCOE) of renewable energies and required subsidies in China," Energy Policy, Elsevier, vol. 70(C), pages 64-73.
    10. Eduardo Schwartz & James E. Smith, 2000. "Short-Term Variations and Long-Term Dynamics in Commodity Prices," Management Science, INFORMS, vol. 46(7), pages 893-911, July.
    11. Martínez Ceseña, E.A. & Mutale, J. & Rivas-Dávalos, F., 2013. "Real options theory applied to electricity generation projects: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 19(C), pages 573-581.
    12. Fernandes, Bartolomeu & Cunha, Jorge & Ferreira, Paula, 2011. "The use of real options approach in energy sector investments," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4491-4497.
    13. Zhao, Zhen-yu & Sun, Guang-zheng & Zuo, Jian & Zillante, George, 2013. "The impact of international forces on the Chinese wind power industry," Renewable and Sustainable Energy Reviews, Elsevier, vol. 24(C), pages 131-141.
    14. Wood, Peter John & Jotzo, Frank, 2011. "Price floors for emissions trading," Energy Policy, Elsevier, vol. 39(3), pages 1746-1753, March.
    15. Yang, Mian & Patiño-Echeverri, Dalia & Yang, Fuxia, 2012. "Wind power generation in China: Understanding the mismatch between capacity and generation," Renewable Energy, Elsevier, vol. 41(C), pages 145-151.
    16. Pechak, Olena & Mavrotas, George & Diakoulaki, Danae, 2011. "Role and contribution of the clean development mechanism to the development of wind energy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(7), pages 3380-3387, September.
    17. Stavins, Robert N., 2003. "Experience with market-based environmental policy instruments," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 9, pages 355-435, Elsevier.
    18. Zhou, Wenji & Zhu, Bing & Fuss, Sabine & Szolgayová, Jana & Obersteiner, Michael & Fei, Weiyang, 2010. "Uncertainty modeling of CCS investment strategy in China's power sector," Applied Energy, Elsevier, vol. 87(7), pages 2392-2400, July.
    19. Caralis, George & Diakoulaki, Danae & Yang, Peijin & Gao, Zhiqiu & Zervos, Arthouros & Rados, Kostas, 2014. "Profitability of wind energy investments in China using a Monte Carlo approach for the treatment of uncertainties," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 224-236.
    20. Zhao, Zhen-Yu & Li, Zhi-Wei & Xia, Bo, 2014. "The impact of the CDM (clean development mechanism) on the cost price of wind power electricity: A China study," Energy, Elsevier, vol. 69(C), pages 179-185.
    21. Michael Grubb & Karsten Neuhoff, 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 7-30, January.
    22. Reuter, Wolf Heinrich & Fuss, Sabine & Szolgayová, Jana & Obersteiner, Michael, 2012. "Investment in wind power and pumped storage in a real options model," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(4), pages 2242-2248.
    23. Stavins, Robert N., 2001. "Lessons From the American Experiment With Market-Based Environmental Policies," Discussion Papers 10589, Resources for the Future.
    24. Fuss, Sabine & Szolgayova, Jana & Obersteiner, Michael & Gusti, Mykola, 2008. "Investment under market and climate policy uncertainty," Applied Energy, Elsevier, vol. 85(8), pages 708-721, August.
    25. Lewis, Joanna I., 2010. "The evolving role of carbon finance in promoting renewable energy development in China," Energy Policy, Elsevier, vol. 38(6), pages 2875-2886, June.
    26. Lee, Shun-Chung, 2011. "Using real option analysis for highly uncertain technology investments: The case of wind energy technology," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4443-4450.
    27. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    28. Kang, Junjie & Yuan, Jiahai & Hu, Zhaoguang & Xu, Yan, 2012. "Review on wind power development and relevant policies in China during the 11th Five-Year-Plan period," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(4), pages 1907-1915.
    29. Alex Y. Lo, 2012. "Carbon emissions trading in China," Nature Climate Change, Nature, vol. 2(11), pages 765-766, November.
    30. Xiliang Zhang & Shiyan Chang & Molin Huo & Ruoshui Wang, 2009. "China's wind industry: policy lessons for domestic government interventions and international support," Climate Policy, Taylor & Francis Journals, vol. 9(5), pages 553-564, September.
    31. Li, Cun-bin & Lu, Gong-shu & Wu, Si, 2013. "The investment risk analysis of wind power project in China," Renewable Energy, Elsevier, vol. 50(C), pages 481-487.
    32. Wang, Zhongying & Qin, Haiyan & Lewis, Joanna I., 2012. "China's wind power industry: Policy support, technological achievements, and emerging challenges," Energy Policy, Elsevier, vol. 51(C), pages 80-88.
    33. Yang, Ming & Nguyen, François & De T'Serclaes, Philippine & Buchner, Barbara, 2010. "Wind farm investment risks under uncertain CDM benefit in China," Energy Policy, Elsevier, vol. 38(3), pages 1436-1447, March.
    34. Zhang, Mingming & Zhou, Dequn & Zhou, Peng, 2014. "A real option model for renewable energy policy evaluation with application to solar PV power generation in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 944-955.
    35. Lee, Shun-Chung & Shih, Li-Hsing, 2010. "Renewable energy policy evaluation using real option model -- The case of Taiwan," Energy Economics, Elsevier, vol. 32(Supplemen), pages 67-78, September.
    36. Mo, Jian-Lei & Zhu, Lei & Fan, Ying, 2012. "The impact of the EU ETS on the corporate value of European electricity corporations," Energy, Elsevier, vol. 45(1), pages 3-11.
    37. Boomsma, Trine Krogh & Meade, Nigel & Fleten, Stein-Erik, 2012. "Renewable energy investments under different support schemes: A real options approach," European Journal of Operational Research, Elsevier, vol. 220(1), pages 225-237.
    38. Abadie, Luis M. & Chamorro, José M., 2008. "European CO2 prices and carbon capture investments," Energy Economics, Elsevier, vol. 30(6), pages 2992-3015, November.
    39. Åsa L�fgren & Markus Wr�ke & Tomas Hagberg & Susanna Roth, 2014. "Why the EU ETS needs reforming: an empirical analysis of the impact on company investments," Climate Policy, Taylor & Francis Journals, vol. 14(5), pages 537-558, September.
    40. Rogge, Karoline S. & Schneider, Malte & Hoffmann, Volker H., 2011. "The innovation impact of the EU Emission Trading System -- Findings of company case studies in the German power sector," Ecological Economics, Elsevier, vol. 70(3), pages 513-523, January.
    41. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
    42. Blanco, Mari­a Isabel & Rodrigues, Glória, 2008. "Can the future EU ETS support wind energy investments?," Energy Policy, Elsevier, vol. 36(4), pages 1509-1520, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jian-Lei Mo & Lei Zhu, 2014. "Using Floor Price Mechanisms to Promote Carbon Capture and Storage (Ccs) Investment and Co2 Abatement," Energy & Environment, , vol. 25(3-4), pages 687-707, April.
    2. Zhang, M.M. & Zhou, D.Q. & Zhou, P. & Chen, H.T., 2017. "Optimal design of subsidy to stimulate renewable energy investments: The case of China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 71(C), pages 873-883.
    3. Zhang, M.M. & Zhou, P. & Zhou, D.Q., 2016. "A real options model for renewable energy investment with application to solar photovoltaic power generation in China," Energy Economics, Elsevier, vol. 59(C), pages 213-226.
    4. Romano, Teresa & Fumagalli, Elena, 2018. "Greening the power generation sector: Understanding the role of uncertainty," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 272-286.
    5. Mo, Jian-Lei & Schleich, Joachim & Zhu, Lei & Fan, Ying, 2015. "Delaying the introduction of emissions trading systems—Implications for power plant investment and operation from a multi-stage decision model," Energy Economics, Elsevier, vol. 52(PB), pages 255-264.
    6. Zhang, M.M. & Wang, Qunwei & Zhou, Dequn & Ding, H., 2019. "Evaluating uncertain investment decisions in low-carbon transition toward renewable energy," Applied Energy, Elsevier, vol. 240(C), pages 1049-1060.
    7. Maeda, Mansaku & Watts, David, 2019. "The unnoticed impact of long-term cost information on wind farms’ economic value in the USA. – A real option analysis," Applied Energy, Elsevier, vol. 241(C), pages 540-547.
    8. Zhang, M.M. & Zhou, D.Q. & Zhou, P. & Liu, G.Q., 2016. "Optimal feed-in tariff for solar photovoltaic power generation in China: A real options analysis," Energy Policy, Elsevier, vol. 97(C), pages 181-192.
    9. Carmen Schiel & Simon Glöser-Chahoud & Frank Schultmann, 2019. "A real option application for emission control measures," Journal of Business Economics, Springer, vol. 89(3), pages 291-325, April.
    10. Kozlova, Mariia, 2017. "Real option valuation in renewable energy literature: Research focus, trends and design," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 180-196.
    11. Zhang, Mingming & Zhou, Dequn & Zhou, Peng, 2014. "A real option model for renewable energy policy evaluation with application to solar PV power generation in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 944-955.
    12. Zhang, Mingming & Liu, Liyun & Wang, Qunwei & Zhou, Dequn, 2020. "Valuing investment decisions of renewable energy projects considering changing volatility," Energy Economics, Elsevier, vol. 92(C).
    13. ShahNazari, Mahdi & McHugh, Adam & Maybee, Bryan & Whale, Jonathan, 2014. "The effect of political cycles on power investment decisions: Expectations over the repeal and reinstatement of carbon policy mechanisms in Australia," Applied Energy, Elsevier, vol. 130(C), pages 157-165.
    14. Brauneis, Alexander & Mestel, Roland & Palan, Stefan, 2013. "Inducing low-carbon investment in the electric power industry through a price floor for emissions trading," Energy Policy, Elsevier, vol. 53(C), pages 190-204.
    15. Mingming Zhang & Dequn Zhou & Hao Ding & Jingliang Jin, 2016. "Biomass Power Generation Investment in China: A Real Options Evaluation," Sustainability, MDPI, vol. 8(6), pages 1-22, June.
    16. Shahnazari, Mahdi & McHugh, Adam & Maybee, Bryan & Whale, Jonathan, 2014. "Evaluation of power investment decisions under uncertain carbon policy: A case study for converting coal fired steam turbine to combined cycle gas turbine plants in Australia," Applied Energy, Elsevier, vol. 118(C), pages 271-279.
    17. Mo, Jianlei & Schleich, Joachim & Fan, Ying, 2018. "Getting ready for future carbon abatement under uncertainty – Key factors driving investment with policy implications," Energy Economics, Elsevier, vol. 70(C), pages 453-464.
    18. Assereto, Martina & Byrne, Julie, 2021. "No real option for solar in Ireland: A real option valuation of utility scale solar investment in Ireland," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    19. Chen, Siyuan & Zhang, Qi & Wang, Ge & Zhu, Lijing & Li, Yan, 2018. "Investment strategy for underground gas storage facilities based on real option model considering gas market reform in China," Energy Economics, Elsevier, vol. 70(C), pages 132-142.
    20. Fan, Xiao-chao & Wang, Wei-qing, 2016. "Spatial patterns and influencing factors of China׳s wind turbine manufacturing industry: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 482-496.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:89:y:2016:i:c:p:271-283. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.