Abstract
In 2013, China launched its domestic pilot Emission Trading Scheme (ETS) as a cost-effective strategy for reducing carbon dioxide emissions. ETS generates carbon prices that interact with the Feed-in Tariff (FIT) policy applied to renewable energies (REN). This paper discusses whether ETS and FIT policies should be mutually exclusive or integrated packages for achieving China's carbon and renewable energy targets, using wind and solar energy as examples. We use equivalent CO2 price as an indicator to assess whether ETS could replace FIT policy at the provincial level. The results show that ETS alone is unlikely to provide sufficient incentive for REN development in China. ETS and FIT policy should be integrated but with coordination to avoid cost-ineffectiveness. Our model predicts that FIT levels should decrease by 3.04–4.63 percent (for wind) and 7.84–8.87 percent (for solar) from 2015 to 2020 if a national ETS commences in 2018.
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