Impacts of output-based ETS and subsidies on CCS retrofitting in China’s coal-fired power plants

Carbon capture and storage (CCS) has been considered as a pivotal technology to reduce carbon emissions in carbon-intensive industries, such as coal-fired power plants (CFPPs). Nevertheless, high investment cost and unclear policy support make the CCS deployment far from the climate mitigation goals in China. This study employs the levelized cost of electricity (LCOE) approach to evaluate the life cycle cost of electricity generation for CFPPs with CCS retrofitting, which considers not only the financial incentives (i.e., the initial investment subsidy and carbon tax subsidy), but the non-financial incentives (such as the carbon emission quota). Specifically, we design four benchmark tightening scenarios to explore the impacts of output-based emission trading system (ETS) and government subsidies on CCS retrofitting. The results are as follows: (1) The CCS retrofitting without quota trading is less attractive for CFPPs to deliver the carbon emissions reduction, in that the initial investment subsidy is not enough to stimulate the CCS retrofitting. (2) If the quota benchmark remains 754 g/kWh unchanged, the CFPPs can turn a profit from CCS retrofitting when the critical carbon tax subsidy reaches 388 CNY/t. As the quota benchmarks are tightened, the carbon tax subsidy must rise to maintain the carbon balance under the ETS. (3) When the quota benchmarks are tightened more stringently, the CFPPs can make a profit only if the quota price gets more higher.