China ETS requires power market reform

Policymakers’ ongoing preference for regulated power tariffs over market-based pricing is one of key problems China needs to address

China needs to reform its inflexible electricity markets before the country’s nascent emissions trading system (ETS) works properly, delegates heard at a recent Europe-China workshop on carbon markets in Shanghai in early November. China has the world’s largest electricity market but prices continue to be largely set by central government, which adjust rates based on a complex calculation involving the type and capacity size of generation source, end-user and location. This interferes with the proper working of the carbon market, according to Zhang Zhongxiang, founding dean of the Ma Yinchu School of Economics in Tianjin University. “Because electricity pricing is set by the government, we c