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Introducing externalities in the power-generation sector of China

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This paper presents results from the application of the China Regional Energy Trade Model (CRETM, developed at PSI) to analyse the impact of externalities in the power-generation sector of China. The model applies state-of-the-art optimisation methods and incorporates partial equilibrium, endogenous technological change and external costs related to regional pollution and the climate change. This model was used in the China Energy Technology Program, CETP, which charted pathways to sustainable futures based on the use of conventional coal technologies in the electricity sector, as well as considering a range of alternative electricity-generation options. The study using CRETM focused on countrywide China, as described by seven fuel- and power-trading regions, and a 1995–2050 time horizon deemed necessary for the introduction of advanced technologies utilising carbon-dioxide sequestration. The earlier CETP study and recent updates of the CRETM used therein concludes in favour of advanced, low-sulphur-generation technologies and carbon-free technologies through policies that foster Research Development and Demonstration (RD&D) activities and related international cooperation. When externalities are included in the analyses, the power-generation system of China becomes more sustainable while the adoption of advanced energy systems is further justified, since the cost per unit of reduced emissions is far below the projected unit cost for the related externalities.

Keywords: external cost, carbon-control policies, endogenous technological change, partial equilibrium, optimisation techniques, power generation, power supply, energy supply, low sulphur, carbon-free, energy policy, China, pollution, climate change, sustainability, sustainable development, electricity generation, coal

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