Aligning renewable energy targets with carbon emissions trading to achieve China's INDCs: A general equilibrium assessment

Abstract

This study evaluates the economic impact of achieving China's Intended Nationally Determined Contributions (INDCs) through emissions trading scheme (ETS) and renewable energy policy, using a Computable General Equilibrium (CGE) model. We explored the behavior of different sectors in the carbon market, carbon trade amount, carbon price and the economic impact of an emissions cap and trade on the employment and GDP. The results demonstrate that the electricity and aviation sectors have relatively higher mitigation costs and tend to be the main buyers of the carbon credits, whereas chemicals, nonmetal production, iron and steel, paper and other manufacturing sectors have relatively lower mitigation costs and tend to be the main sellers. Carbon trading price and market scale are closely related to various factors such as the emissions quota allocation scheme among sectors, coverage of participating sectors and the level of renewable energy development. Emission trading is also confirmed to be an economically efficient approach that contributes to the achievement of emission reduction targets with less economic cost. In order to make full use of this approach, policy maker should assign an appropriate emissions quota allocation scheme, extend coverage of various sectors and promote the expansion of low-carbon technologies such as renewable energy.