The role of technical change in low-carbon transformation and crises in the electricity market: A CGE analysis with R&D investment

Abstract

The Russia–Ukraine conflict has exacerbated the global energy and electricity crisis. Considering China's carbon neutrality target, predicting the power market's response to the mandate of energy transformation and the impact of the energy crisis is particularly critical. Technical change is essential for the power sector to solve these crises; however, limited studies have systematically evaluated the role of endogenous technical change in low-carbon transformation of the power sector from an economy-wide perspective. Therefore, applying a multi-sector computable general equilibrium model, this study examines the potential trajectory of research and development (R&D)-based endogenous technical change, investigating the impact of different technical changes on China's power sector, the overall socio-economy, and the energy environment. The relevant results are threefold. First, carbon pricing combined with subsidising renewable electricity is an effective way to reduce emissions to achieve low-carbon transformation in the power sector. This approach can cause relatively moderate losses for the macro-economy and households' welfare. It can also significantly improve the renewable share, electrification rate and synergistic abatement effects on sulphur dioxide and nitrogen oxides. Second, shifting R&D inputs from fossil fuel power generation technology to renewable power technologies should be considered to advance the deep decarbonisation of the power sector. This approach can further improve the renewable share and electrification rate and enhance synergistic abatement effects; however, it can also slightly increase the macro-economic loss. Third, to alleviate the negative impacts to the macro-economy, it is advisable to consider increasing the R&D inputs of various sectors extensively, rather than only increasing that in the power sector. This approach can effectively alleviate the negative impacts on the socio-economy while improving the renewable share with the best synergistic abatement effects.