The Affect of Carbon Emission Trading Markets on Grid Investment Costs

The carbon emission reduction effects brought about by carbon markets have been widely acknowledged. However, the implicit systemic costs imposed on the electricity grid by carbon markets have received less attention. This paper uses the pilot policy of the Chinese carbon emission trading market as a quasi-natural test and employs a DID (Differences-inDifferences) identification strategy to empirically investigate the impact and mechanisms of carbon markets on the investment costs of provincial-level grid enterprises. The results indicate that carbon markets significantly increase the investment costs of the pilot regions’ grids, confirming the fact that the Chinese carbon market imposes additional systemic costs on the electricity grid. This conclusion holds true even after a series of robustness tests. Carbon markets increase the pressure on grid companies to accommodate renewable energy sources and also increase the frequency of participation of thermal power units in peak load regulation, thereby increasing the systemic costs of grid companies. In the future, it is necessary to formulate policies to mitigate the systemic costs of the grid to ensure the sustainable development of both the carbon market and grid enterprises..