Is emission trading scheme an opportunity for renewable energy in China? A perspective of ETS revenue redistributions

Abstract

Emission Trading Scheme (ETS) and renewable energy generation are emission reduction methods in most countries in the world. However, few studies have focused on the impact of ETS on renewable energy. The question is, can carbon trading promote renewable energy generation? This paper first analyzes different distribution strategies of ETS revenue by applying dynamic recursive computable general equilibrium model with multi-sectors. Practical scenarios and better options of distribution of ETS revenue by a comprehensive evaluation based on entropy weight method are proposed. The results show that ETS with no subsidy to renewable will reduce the demand for energy, increase the cost of renewable energy sources and decrease the generation. ETS will be the spring of renewable energy generation when most of the revenue is used for all kinds of renewable energy sources, instead of some of them. The growth of renewable energy generation is also substantial. It is necessary that a small portion of ETS revenue should be used to subsidize residents to reduce the gap between the rich and the poor. If this income is used for government investment and consumption, it will also help to mitigate economic losses, which is caused by the direction of investment by the Chinese government.