Complementing carbon tax with renewable energy investment to decarbonize the energy system in China

Abstract

Building a low-carbon energy system is particularly essential to address global climate change and regional air pollution. Focusing on China, this study integrated a power system decision model into a computable general equilibrium (CGE) model to comprehensively explore the low-carbon transition, environmental benefits, and economic costs of a combined carbon tax (CTax) and renewable energy investment (REI) policy. This study finds that a dynamic CTax (with a carbon price of 290 and 590 RMB/ton CO2 in 2035 and 2050, respectively) can reduce the share of coal-fired power from 65 % in 2017 to 22 % in 2050. This will reduce coal consumption by 0.8 billion tons of standard coal equivalent (tce), thus resulting in a coal share decline in the energy system from 60 % in 2017 to 29 % in 2050. Regarding environmental benefits, CTax can mitigate CO2 and air pollutant emissions by 3.9 and 0.9 Gt, respectively, in 2050. Complementing CTax with REI can further reduce coal consumption by 0.2 billion tce and lower the coal-fired power share to 12 %. Regionally, emission reductions in East China can be enhanced owing to REI, which can mitigate the inequity in emission reductions resulting from the CTax. However, this study finds that employing CTax alone may negatively affect the economy. In particular, across the Jin-Meng and Shan-Gan-Ning regions, the gross domestic product (GDP) will decrease by 3.35 % and 2.73 %, respectively. However, complementing CTax with REI can dampen these negative impacts, reducing the national GDP loss from −0.94 % to −0.68 %.