AEMPS

Carbon-Neutral Power Transitions under Constraints: A Comparative Energy-Economic View of China, the United States and the European Union

Author

Xinrui Liu * 1

1 Rutgers Business School

Corresponding Author

Xinrui Liu

Keywords

carbon neutrality, power system transition, carbon pricing, clean electricity tax credits, flexibility

Abstract

Carbon neutrality is currently accelerating the decarbonization process in the power sector. However, China, the United States, and the European Union are taking significantly different transformation paths. This article uses an energy economics framework to link binding system constraints, policy combinations, and the overall system costs to compare the differences among the three countries. This analysis integrates evidence from international assessments and peer-reviewed studies regarding the value and flexibility of variable renewable energy (VRE). The results show that as the share of renewable energy increases, economic bottlenecks shift from generation costs to flexibility and grid transmission: the marginal market value of wind and solar energy decreases as penetration rates increase, while the value of dispatchable system services increases. The EU's total control and trading system and market integration enhance long-term scarcity expectations, but without appropriate hedging designs, they increase the risk of short-term price fluctuations. The United States relies more on technology-neutral tax credits to reduce capital costs and accelerate deployment in the absence of a national carbon price. China combines large-scale clean infrastructure construction with continuous coal supply guarantees, which makes flexibility compensation, inter-provincial transmission, and reliable emission limits key to achieving cost-effective decarbonization. For China, the policy impact lies in regarding flexibility as a decarbonization asset, strengthening market signals through improved monitoring, reporting, and verification (MRV), and reducing power outages through grid and market reforms.

Citation

Xinrui Liu. Carbon-Neutral Power Transitions under Constraints: A Comparative Energy-Economic View of China, the United States and the European Union. AEMPS (2026) Vol. 264: 21-27. DOI: 10.54254/2754-1169/2026.BJ32208.

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