Declining Renewable Costs, Emissions Trading, and Economic Growth: China’s Power System at the Crossroads

Yidan Chen, Jiang Lin (), David Roland-Holst, Xu Liu and Can Wang
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Yidan Chen: State Key Joint Laboratory of Environment Simulation and Pollution Control (SKLESPC), School of Environment, Tsinghua University, Beijing 100084, China
Jiang Lin: Department of Agricultural and Resource Economics, 207 Giannini Hall, University of California, Berkeley, CA 94720, USA
Xu Liu: National School of Development, Peking University, Beijing 100871, China
Can Wang: State Key Joint Laboratory of Environment Simulation and Pollution Control (SKLESPC), School of Environment, Tsinghua University, Beijing 100084, China

Energies, 2023, vol. 16, issue 2, 1-14

Abstract: As China reaffirms its commitments to limit the climate change risk and improve air quality, a combination of new policy and technology opportunities is presenting itself. A national emission trading scheme (ETS) begun in 2017 and is showing great promise, creating decentralized incentives for cost effective pollution mitigation. At the same time, sustained energy sector innovation is driving the costs of renewable electric power generation below those of fossil fuel substitutes. Early economic evidence of ETS measured pollution reductions, but has not addressed important economy-wide net benefits. This paper focuses on technology and energy cost savings and is the first to account for three multiplier effects—shifting consumption patterns, job growth, and the benefits of induced productivity growth—that would result from accelerated renewable electricity deployment in China. Results from a dynamic recursive computable general equilibrium model for 2017 to 2030 show that expanding renewable deployment can interact with the ETS to slash GHG emissions, as well as energy costs, stimulating significant long-term economic growth. These results suggest that China should accelerate its clean energy transition, not only for the air-quality and climate benefits, but to fulfill the energy sector’s potential to promote innovation, employment, and economic growth.

Keywords: power system; renewable costs; emission trading scheme; economic growth; CGE modelling (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2023
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