Can renewable energy portfolio standards and carbon tax policies promote carbon emission reduction in China's power industry?

Abstract

The carbon emissions of the power industry in China rank the highest among all industries. There is an urgent need to explore the development path of the power industry under carbon peaking and carbon neutrality. Renewable portfolio standards (RPS) and carbon tax policy are effective policy instruments for realizing the low-carbon transition in the power industry. When both RPS and carbon tax policy are implemented, can they drive carbon reduction in the power industry? This paper constructs an electricity market equilibrium model and a system dynamics (SD) model to analyse the impact of multiple policies in electricity markets to address this question. There were several important results. (1) The increase in quota ratio and carbon tax price negatively impacts the generation of thermal power firms, which raises their willingness to invest in renewable energy. (2) The intensity of emissions reduction has a significant influence on the effectiveness of emissions reduction. The greater the emissions reduction intensity, the better the carbon emissions reduction effect, but the power supply declines. (3) Under multiple policies, green power firms choose cost padding to achieve profit maximization goals, which reduces green power generation and leads to market inefficiency.