Abstract
The adoption of emissions trading scheme (ETS) and renewable energy sources (RES) policies have been essential to achieving China’s national targets for reducing CO2 emissions and developing non-fossil energy sources. The combination of ETS and RES policies raises an important issue: What is the effect of combining ETS and RES policies on the existing carbon market and economy? Focusing on the design of the nationwide carbon market, this paper uses a multi-regional computable general equilibrium (CGE) model to analyze the economic impacts of ETS policy when combined with RES policies in China. The results show that China’s annual ETS emissions cap should decrease by 0.3% to maintain stable CO2 prices and achieve the targets in China’s intended nationally determined contribution (INDC). It is estimated that the CO2 price on the nationwide carbon market would decrease by 11–64% when the renewable energy subsidy rate increases from 20 to 100%, and the total trading volume would decrease by 3–25%. The results also show that the combination of an ETS and a feed-in tariff (FIT) results in greater GDP cost and welfare loss in all Chinese regions, increasing the total social cost by 0.01–0.06%.
Highlights
Addressing climate change and promoting low-carbon development are the two key goals of energy policy in China
The renewable energy source (RES) policy can effectively increase the share of renewable energy generation and accelerate the energy for fossil energy
The results show that the annual trading value of the nationwide carbon market is about 119 million yuan with an emissions trading schemes (ETS) policy alone
Summary
Addressing climate change and promoting low-carbon development are the two key goals of energy policy in China. In an effort to join international action to address climate change at a national level, the Chinese government has set the ambitious target of cutting CO2 emissions per unit of GDP by 60–65% of the 2005 level by the year 2030. This target has been submitted to the United Nations. Besides its main intention of emissions reduction, the nationwide carbon market is intended to transfer wealth across regions, thereby promoting economic development in central and western China. The market-based mechanism of the ETS provides an opportunity for the central and western regions to benefit from quota sales
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