The environmental benefits and economic impacts of Fit-in-Tariff in China

Abstract

We employ a dynamic computable general equilibrium (CGE) model that includes Fit-in-Tariff, greenhouse gas (GHG), and air pollutants modules to evaluate the impacts of different subsidy scenarios. Assuming that the subsidies will continue until 2030, our results indicate that the Fit-in-Tariff will have positive effects on real GDP, employment, and emission reductions and that these benefits will increase over time. Such subsidies not only encourage the substitution of clean energy for traditional fossil energy, but also invite investment in renewable energy industries, ultimately benefiting all sectors. A sustained higher subsidy rate can contribute to the abatement of GHGs, and air pollutant emissions significantly, while also stimulating real GDP and employment in the early periods of the policy, yet it will not be conducive to growth over time due to the increasing tax burden. If subsidies continue until 2050, the environmental benefits will become more pronounced while the economic benefits will gradually disappear.