Impact of introducing Chinese certified emission reduction scheme to the carbon market: Promoting renewable energy

Abstract

The China Certified Emission Reduction scheme (CCER) and the Cap-and-Trade (CaT) mechanisms jointly constitute the Emission Trading Scheme (ETS), which is expected to have a profound impact on China's social and economic decarbonization. However, previous studies have primarily focused on the impact of the CaT mechanism, neglecting the fact that CCERs serve as a carbon offset trading mechanism. This paper focuses on the impact of the CCER mechanism on China's energy economy and environment by constructing a recursive dynamic computable general equilibrium model that couples CaT and CCER mechanisms. Introducing the CCER mechanism based on the CAT mechanism leads to increased output and reduced prices in renewable energy sectors, cascading positive effects across various energy-utilizing sectors to counter the decline in Gross Domestic Product (GDP) and residential welfare. The finding suggests that China's unique CCER mechanism is poised to play a more important role in promoting renewable energy to mitigate global warming, given its potential to transform the structure of energy production and consumption. Finally, targeted policy recommendations are proposed for implementing the CCER mechanism.