Economic and environmental impacts of photovoltaic power with the declining subsidy rate in China

Abstract

Photovoltaic (PV) power is expected to play an important role in reducing global warming and improving energy security. China promotes PV power development by implementing feed-in tariff policies. However, the economic and environmental impacts of substituting coal-fired electricity with PV power, particularly as the subsidy rate declines, are not well-known. This study estimates the economic and environmental impacts in different cases and scenarios by combining life-cycle assessment with input-output analysis. Results indicate that substituting PV power for coal-fired electricity has negative impacts on employment, household income, and tax revenue. Although this substitution can promote economic growth when PV power generation is subsidised, the impact of the substitution on GDP will gradually decline as the subsidy rate is reduced and finally becomes negative. Assuming that the levelized cost of PV power declines following the learning curve, the same results will hold even if PV power generation becomes profitable in the future. Despite its negative impacts on employment, household income and tax revenue, the substitution has huge external values. Therefore, policies are needed to internalise the external value and address the economic impacts of the substitution.