1. An analysis of the interactions between electricity, fossil fuel and carbon market prices in Guangdong, China.
- Author
-
Liu, Xianbing and Jin, Zhen
- Subjects
CARBON pricing ,MARKET prices ,LIQUEFIED natural gas ,ELECTRICITY pricing ,ELECTRICITY ,FOSSIL fuels - Abstract
Using the available information and a standard econometric approach analyzing the time series dataset, this study identifies the interactions between electricity, fossil fuel and carbon market prices in Guangdong, China. The result confirms a long running co-integration between carbon market prices and the prices of coal, diesel and liquid natural gas (LNG). Conversely, fossil fuel prices have no impact on the short term dynamics of carbon prices. The price of electricity on the monthly forward market in Guangdong is significantly and positively associated with the first difference of the price of coal, but has no significant relationship with the first differences of carbon, diesel and LNG prices. This analysis provides certain implications for ongoing power sector reform and nationwide carbon market development in China. The liberalization of the power industry should be further advanced to create conditions for carbon cost pass-through on to the electricity market. Meanwhile, the national emissions trading scheme (ETS) should apply simpler and stricter benchmarks to allocate emissions allowances for the power sector. Fewer categories of benchmarks promote competition among different types of power generators and a shift to an electricity supply portfolio with lower carbon intensity. Stricter benchmarks create more demand for emissions allowances and result in higher carbon market prices. To increase the ratio of emissions allowances by auctioning is also necessary to put substantial pressure on thermal power plants to pass their carbon costs on to end users. • This paper identifies the interactions between electricity, fossil fuel and carbon market prices. • A standard econometric approach is used to analyze the time series data in Guangdong, China. • The result confirms a long run co-integration between the prices of carbon and fossil fuels. • Carbon price change is not a significant factor to electricity prices of the monthly forward market. • This study gives insights to China's power sector reform and national carbon market development. [ABSTRACT FROM AUTHOR]
- Published
- 2020
- Full Text
- View/download PDF