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

Author

Listed:
  • 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)

  • David Roland-Holst

    (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)

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.

Suggested Citation

  • Yidan Chen & Jiang Lin & David Roland-Holst & Xu Liu & Can Wang, 2023. "Declining Renewable Costs, Emissions Trading, and Economic Growth: China’s Power System at the Crossroads," Energies, MDPI, vol. 16(2), pages 1-14, January.
    • Handle: RePEc:gam:jeners:v:16:y:2023:i:2:p:656-:d:1026501
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