Can energy quota trading promote the transformation of the power generation structure? Evidence from prefecture-level cities in China

Abstract

The low-carbon transition of the electricity sector is a crucial component of sustainable economic and societal development. It is important to explore the role of market incentive policies, such as Energy Quota Trading (EQT), particularly in the process of power transformation. We employ a quasi-natural experiment to evaluate the impact of China's EQT pilot program. Using city-level power generation structure data, we apply the difference-in-difference method (DID) to examine the effect of EQT on power transformation. Our findings indicate that EQT significantly accelerates the transformation of power generation structures. The heterogeneity analysis reveals that the impact of EQT depends on the availability of renewable energy resources. Regions with limited resource endowments face challenges in achieving transformation. Meanwhile, those with abundant resources show varying outcomes, influenced by the type of power generation. This underscores the fundamental role of resource endowments in driving energy transitions. Additionally, the significant transformation effects observed in regions with advanced technological capabilities highlight the critical role of technological progress in facilitating energy structure adjustments. With respect to industrial structure, EQT shows significant transformation effects mainly in regions with a moderate proportion of secondary industry, suggesting the restrictive effect of industrial structure on power transformation. This study provides both theoretical insights and empirical evidence for policymakers seeking to use market mechanisms to drive power sector transformation and achieve carbon peaking and neutrality targets on schedule.