Carbon pricing policies and renewable energy development: Analysis based on cross-country panel data

Abstract

While studies have theoretically discussed the impact of carbon pricing on renewable energy, the practical implementation and effectiveness of these policies remain uncertain. This study empirically examines the role of carbon emissions trading and carbon tax in global renewable energy development using panel data from 196 countries and regions and employing the staggered difference-in-differences (DID) model and Bacon decomposition method. The results suggest that: (1) From the perspective of policy shocks, carbon trading has increased non-hydro renewable electricity generation by 73.32%, while carbon tax has increased it by 31.79%. This indicates that the overall impact of carbon trading on renewable energy is greater than that of carbon tax. However, the elasticity coefficients of renewable energy to carbon trading prices and carbon tax rates are 0.1801 and 0.1845, respectively, suggesting a slightly greater marginal effect of carbon tax on renewable energy compared to carbon trading. (2) Both carbon tax and carbon trading have mitigated the growth of fossil electricity and encouraged public investment in renewable energy, thereby fostering its development. (3) The influence of carbon pricing on renewable energy varies by income level; notably, the implementation of these policies in high-income countries has diminished their promotional effect on renewable energy. (4) The contribution of technological innovation to renewable energy development is smaller than that of policies including carbon trading and carbon tax, indicating that renewable energy development during the sample period was predominantly driven by policy measures. The findings indicate that the application of carbon pricing policies should be further promoted to accelerate the energy mix transition.