Over the past decade, the transition of China’s electricity generation from a centrally planned operation (CPO) to a market-based system has been notably slow—a delay that has allowed power plants with high carbon emissions to continue operating instead of being replaced by cleaner alternatives.

Johannes Urpelainen

As a result, China has produced an additional 3 gigatons (GT) of carbon emissions over the last 10 years: an amount equivalent to that of India, the world’s fourth-largest emitter, during the same period, according to a study by an international group of researchers that includes Johannes Urpelainen, an associate faculty member of Johns Hopkins University’s Ralph O’Connor Sustainable Energy Institute (ROSEI). The team’s results recently appeared in Nature Sustainability.

Urpelainen, the Prince Sultan bin Abdulaziz Professor of Energy, Resources, and Environment with the JHU School of Advanced International Studies (SAIS), discusses why China has been slow to adjust its system, how the group produced its results, and what he hopes people learn from the paper.

What is a CPO and why it isn’t as effective in terms of curbing emissions as a market-based system?

At the highest level, with a market-based system, electricity pricing in the end reflects the highest cost of production. If you had a completely liberalized market, at any given time the price of electricity would be the price of the highest production cost at that time. That means that the producers that can produce at the lower cost are producing, while those that can only produce at the higher cost are not.

China’s CPO tries to mimic that. They have designed this complicated system of rules and algorithms where they are trying to make it as efficient as possible but, in the end, production decisions are controlled by administrators. They have these unusual “fairness policies” that are mentioned in the paper, in which the plants are getting some share of the profit and income they generate to keep employment going in remote areas of the country. This results in situations like power plants running when they did not need to be to make them more profitable.

What caused the delay in transforming China’s electricity generation?

Several things. One is that when you have been in a certain system for a long time, there is a culture that surrounds it. So, when it isn’t natural or obvious to people that a market-based system might be better than what they are doing, some resistance or concern will happen.

But then there is also politics, and when you have plants that are getting more revenue from the current system as opposed to the market-based system, they won’t want to change. The administrators controlling the power plants are going to go against it because they have a lot of money at stake.

There is also the social concern. If you move into the system too quickly then it’ll have an impact on these communities where you have a lot of people working in power plants and coal mines, whose jobs could be at stake. That could lead to social unrest, which is something the government won’t want. If you combine all these factors, it makes creating this change difficult to move along.

What was your method for estimating the additional carbon emissions that would have been avoided if China had undergone its transformation at a faster pace?

We built a multi-timescale dispatch model that was able to make a reasonable guess of the amount of carbon the market-based system would have produced. We then compared it to what China’s power plants created over the past decade.

In addition to the sheer amount of greenhouse gases (GHG) that were emitted by China’s power plants, we found that, in some provinces, the level of extra emissions accounted for up to 20% of the annual power-related GHG emissions. We also found that national-level GHG emissions have increased because the CPO over-allocated roughly 30% of the market shares of electricity generation to high-carbon power plants, including those in provinces that have been implementing energy-saving operation policies.

What do your results reveal about effective decarbonization strategies?

In terms of people who work in climate change, I hope they take away how important it is to pay attention to the governance side of things. A country’s economy can have a big impact on how much carbon is produced, which is important for the health of the planet. If you want to understand how to decarbonize, we need to design these systems to accommodate more variables and become smarter.