Which decarbonization policy mixes are better for China's power sector? A simulation balancing aggregate abatement effects and economic impacts

Abstract

The decarbonization policies are currently being planned or implemented worldwide, particularly for emerging economies such as China. When the government designs a preferred decarbonization policy mix, both environmental and economic impacts should be considered. This paper focuses on decarbonization policy mixes in China's power sector, including renewable electricity subsidies (ES), tradable green certificates (TGC), and two carbon pricing instruments. An integrated model combining a partial equilibrium model and an input-output framework was constructed to investigate their abatement effects and economic impacts. The results show that the combination of multiple decarbonization policies can achieve greater emission reduction or lower economic losses compared to implementing them separately. The mix of carbon pricing and TGC shows the least economic losses; the mix of carbon pricing, ES, and TGC achieves maximum abatement effect. A narrow focus on carbon emission reduction would hinder the economic development. The combination of multiple decarbonization policies can trigger more substantial variations in the supply chain of the power sector than their individual implementation. Those policy mixes including carbon tax may achieve lower carbon emissions and economic losses compared to those including a carbon emissions trading market. Therefore, policymakers should conduct a comprehensive simulation of the multiple impacts of policy mixes before implementing them, encompassing both direct impacts on the power sector and indirect impacts on its upstream sectors.