Will fuel switching ever happened in China’s thermal power sector? The rule of carbon market design

To assess the effectiveness of China’s emissions trading scheme (ETS) in facilitating energy structure optimization, we constructed a fuel-switching model utilizing data from 1067 generating units under the Chinese ETS framework. The model simulates the fuel-switching price in China’s thermal power sector, taking into account various allowance allocation strategies. The results show the following: 1) Thermal power plants will transition from coal to gas if the current ETS auction rate surpasses 26%. 2) Furthermore, in scenarios where the ETS operates independently, a transition will occur if the carbon allowance market is entirely auction-based and the carbon price attains 119.50 USD/tCO₂. 3) In a collaborative scenario involving both the ETS and a gas feed-in tariff subsidy, a carbon price of 9.39 USD/tCO₂ will effect a transition from coal to gas, provided both the auction ratio and subsidy price are maximized.