China’s power system is transitioning from fossil fuels to high-penetration variable renewable energy (VRE), challenging traditional models of electricity supply security. This challenge stems from two interconnected issues: the economic viability of coal plants under declining utilization rates, and the system’s escalating flexibility requirements. This study applies the Causal Loop Diagram (CLD) method to unravel dynamic feedback mechanisms between VRE deployment, storage utilization, and capacity remuneration, identifying leverage points for policy intervention. By contrasting China’s coal capacity payments with the UK’s technology-neutral capacity market, we derive profound insights for coordinating flexibility incentives and decarbonization goals. This study focuses on how to maintain electricity supply security while managing the orderly phase-out of coal power. Analysis reveals that the current capacity compensation mechanism has potential drawbacks, including the exclusion of emerging flexible resources, the risk of overinvestment. Based on this, we propose that China implement coordinated reforms across following domains: First, establish competitive, technology-neutral capacity markets to incentivize investments in flexible resources like energy storage and demand-side response. Second, deepen electricity market reforms to create diversified revenue streams for energy storage through energy trading, ancillary services, and capacity mechanisms. Third, implementing a fixed cap on emissions and introducing a carbon price floor to accelerate the phase-out of inefficient coal power. Finally, create strategic reserves to ensure grid reliability during extreme events, thereby strengthening system resilience throughout the energy transition.

Energy sector decarbonization is a key battleground in China’s march toward carbon neutrality, and understanding what it means and takes is crucial for its policy-making and sustainable implementation. Here we analyze the structural challenges and review the necessary supporting technologies and systems of energy sector decarbonization in China. It requires not only supporting technologies such as energy efficiency, zero-carbon energy, and carbon capture, utilization and storage, but also enabling systems such as the transmission, distribution and storage system, carbon governance mechanisms, and risk alleviation systems addressing risks of renewables waste and critical mineral supply. A technology roadmap highlighting techno-economics, environmental impact, technology innovation, and carbon market mechanisms is needed to facilitate energy sector decarbonization in China.

The China Regional Energy Model (C-REM) is a recursive-dynamic, multi-sector, multi-regional computable general equilibrium model that has been widely used in studies of the impact of energy and climate policies, with a focus on the distribution of effects across China’s provinces. Here we summarize its historical applications, describe the modeling methods used in the C-REM Version 4.0 (its newly updated version), and illustrate its features by showing sample simulation results for China’s carbon neutrality target. We use the latest regional input–output tables for China and the Global Trade Analysis Project 11 database to update the base year economic data to the year 2017. We match and reconcile provincial energy data with economic data to ensure consistency between physical and monetized values. We introduce carbon capture and storage technologies as a backstop to achieve net-zero emissions in the model simulations. Our simulations indicate that the 2060 carbon neutrality target will lead to a lower and earlier peak in total primary energy consumption with a transition towards non-fossil energy sources compared to the prior target, which focused only on the timing of the carbon peak. Our scenarios further suggest that the electricity and metal smelting sectors are the main contributors to CO₂ reduction between 2025 and 2060. Assuming the current effort-sharing principle continues to be used for emissions reduction target allocation among provinces, more developed provinces and provinces that rely more on fossil-based energy will bear higher costs in a net zero energy transition. Certain northwest provinces are projected to experience positive impacts due to industry relocation, driven by abundant renewable resources and carbon storage capacity. The paper concludes with a discussion of anticipated directions for the future development of the C-REM.