Identifying and mitigating a key barrier to carbon reduction in the power sector: a three-party evolutionary game analysis of cross-provincial green electricity trading

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Original abstract

Electricity generation accounts for most global carbon emissions, and its decarbonization is crucial to achieving the climate target. Although renewables have been developing rapidly, the expected decline of power-sector carbon emissions has not emerged at a similar speed. The gap indicates a basic issue: carbon reduction depends on whether low-carbon electricity can replace, instead of merely complement, fossil-based electricity generation. Cross-provincial green electricity trading has been highly advocated to induce the requisite substitution process by reissuing renewable electricity from green region to power-demand centre. However, its contribution to carbon reduction in practice is limited. Our study unravels a typical obstacle to effective decarbonization: the conflict of interests among local governments, grids and outside renewable power producers hampers the substitution of low-carbon electricity with carbon-intensive electricity. As an attempt to reveal this mechanism, we establish a three-party evolutionary game model considering the bounded rationality and dynamic evolution of their strategies. We find the strategies and conditions of institutional arrangements under which cross-provincial green electricity trading support or hinder the low-carbon substitution. The implication on carbon reduction is verified by a supplement discount-based estimate. Our results indicate that, under the existing institutional arrangement and market structure, the mechanism of the system converges to a stable equilibrium that cross-provincial electricity trading is persistently enabled but less conducive to carbon reduction because effective low-carbon substitution is not systematic. Further analysis confirms that market incentives such as price-based and demand-based adjustments alone are not able to imply the self-available withdrawal of local protection. By shifting the analytical perspective from the efficiency of electricity trading to that of carbon reduction effectiveness, our study offers a novel view of structural constraints on power-sector decarbonization. Our finding suggests that effective decarbonization requires formal barriers to cross-sectoral trading to be removed as well as a rational institutional design to overcome local protection and support even deeper low-carbon substitution.

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