Impacts of carbon tax and tradable permits on wind power investment in China

Abstract

China's national market of carbon emission tradable permits was launched on December 19, 2017. However, the adequate discussions regarding how much CO2 individual companies will be allowed to emit without financial penalty are still needed. Meanwhile, those enterprises not regulated by the cap-and-trade program would be subject to carbon tax. As such, from the perspective of promoting renewable energy, what is the appropriate carbon tax? How much CO2 should industries within the cap-and-trade program be allowed to emit without penalty? This paper uses the Real Options theory to analyze the impacts of the two policies on China's wind power investment considering the uncertainties with regard to the prices of coal, carbon, and electricity, as well as the uncertainty of the utilization hours of wind turbines.