IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v165y2022ics030142152200163x.html
   My bibliography  Save this article

How do carbon cap-and-trade mechanisms and renewable portfolio standards affect renewable energy investment?

Author

Listed:
  • Yan, Yue
  • Sun, Mei
  • Guo, Zhilong

Abstract

In order to promote the low-carbon transformation, Chinese government plans to implement two policies in the power industry: carbon cap-and-trade mechanisms and renewable portfolio standards. However, whether their synergy can drive the development of Chinese renewable energy industry has become a key issue. Based on China’s renewable energy industry, this paper established an optimization model with the objective function for maximizing electricity company profits. The study further employed scenario analysis to design four policy scenarios: no-policy scenario, carbon cap-and-trade mechanisms scenario, renewable portfolio standards scenario and mixed scenario. The mentioned scenarios were used to explore the impact of various policy situations on electricity companies’ investment decisions, total carbon emissions, consumer surplus and social welfare when renewable energy, new conventional energy and conventional energy are available in the market. The research findings obtained thus showed that in terms of renewable energy promotion, mixed scenario is the best. Our results also showed that at the initial stage of China’s low-carbon transformation, the social welfare level under mixed scenario is the highest. The outlined findings provide some policy suggestions for promoting the rapid development of renewable energy and accelerating the low-carbon transformation with high quality.

Suggested Citation

  • Yan, Yue & Sun, Mei & Guo, Zhilong, 2022. "How do carbon cap-and-trade mechanisms and renewable portfolio standards affect renewable energy investment?," Energy Policy, Elsevier, vol. 165(C).
    • Handle: RePEc:eee:enepol:v:165:y:2022:i:c:s030142152200163x
    DOI: 10.1016/j.enpol.2022.112938
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S030142152200163X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2022.112938?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gawel, Erik & Strunz, Sebastian & Lehmann, Paul, 2014. "A public choice view on the climate and energy policy mix in the EU — How do the emissions trading scheme and support for renewable energies interact?," Energy Policy, Elsevier, vol. 64(C), pages 175-182.
    2. Currier, Kevin M., 2013. "A regulatory adjustment process for the determination of the optimal percentage requirement in an electricity market with Tradable Green Certificates," Energy Policy, Elsevier, vol. 62(C), pages 1053-1057.
    3. Nicolli, Francesco & Vona, Francesco, 2019. "Energy market liberalization and renewable energy policies in OECD countries," Energy Policy, Elsevier, vol. 128(C), pages 853-867.
    4. Amundsen, Eirik S. & Mortensen, Jorgen Birk, 2001. "The Danish Green Certificate System: some simple analytical results," Energy Economics, Elsevier, vol. 23(5), pages 489-509, September.
    5. Delarue, Erik & Van den Bergh, Kenneth, 2016. "Carbon mitigation in the electric power sector under cap-and-trade and renewables policies," Energy Policy, Elsevier, vol. 92(C), pages 34-44.
    6. Iychettira, Kaveri K. & Hakvoort, Rudi A. & Linares, Pedro & de Jeu, Rob, 2017. "Towards a comprehensive policy for electricity from renewable energy: Designing for social welfare," Applied Energy, Elsevier, vol. 187(C), pages 228-242.
    7. Li, Wei & Lu, Can & Zhang, Yan-Wu, 2019. "Prospective exploration of future renewable portfolio standard schemes in China via a multi-sector CGE model," Energy Policy, Elsevier, vol. 128(C), pages 45-56.
    8. Amundsen, E.S. & Mortensen, J.B., 2001. "The Danish Green Certificate System: Some Simple Analytical Results," Norway; Department of Economics, University of Bergen 226, Department of Economics, University of Bergen.
    9. Freitas, Carlos J. Pereira & Silva, Patrícia Pereira da, 2015. "European Union emissions trading scheme impact on the Spanish electricity price during phase II and phase III implementation," Utilities Policy, Elsevier, vol. 33(C), pages 54-62.
    10. Chan, Nathan W. & Morrow, John W., 2019. "Unintended consequences of cap-and-trade? Evidence from the Regional Greenhouse Gas Initiative," Energy Economics, Elsevier, vol. 80(C), pages 411-422.
    11. Yi, Bo-Wen & Xu, Jin-Hua & Fan, Ying, 2019. "Coordination of policy goals between renewable portfolio standards and carbon caps: A quantitative assessment in China," Applied Energy, Elsevier, vol. 237(C), pages 25-35.
    12. Tamás, Mészáros Mátyás & Bade Shrestha, S.O. & Zhou, Huizhong, 2010. "Feed-in tariff and tradable green certificate in oligopoly," Energy Policy, Elsevier, vol. 38(8), pages 4040-4047, August.
    13. Xia, Fang & Lu, Xi & Song, Feng, 2020. "The role of feed-in tariff in the curtailment of wind power in China," Energy Economics, Elsevier, vol. 86(C).
    14. Bao, Xiongjiantao & Zhao, Wenhui & Wang, Xiaomei & Tan, Zhongfu, 2019. "Impact of policy mix concerning renewable portfolio standards and emissions trading on electricity market," Renewable Energy, Elsevier, vol. 135(C), pages 761-774.
    15. Iychettira, Kaveri K. & Hakvoort, Rudi A. & Linares, Pedro, 2017. "Towards a comprehensive policy for electricity from renewable energy: An approach for policy design," Energy Policy, Elsevier, vol. 106(C), pages 169-182.
    16. Raadal, Hanne Lerche & Dotzauer, Erik & Hanssen, Ole Jørgen & Kildal, Hans Petter, 2012. "The interaction between Electricity Disclosure and Tradable Green Certificates," Energy Policy, Elsevier, vol. 42(C), pages 419-428.
    17. A. Downward & G. Zakeri & A. B. Philpottt, 2010. "On Cournot Equilibria in Electricity Transmission Networks," Operations Research, INFORMS, vol. 58(4-part-2), pages 1194-1209, August.
    18. Zhu, Chaoping & Fan, Ruguo & Lin, Jinchai, 2020. "The impact of renewable portfolio standard on retail electricity market: A system dynamics model of tripartite evolutionary game," Energy Policy, Elsevier, vol. 136(C).
    19. Fan, Jing-Li & Wang, Jia-Xing & Hu, Jia-Wei & Wang, Yu & Zhang, Xian, 2019. "Optimization of China’s provincial renewable energy installation plan for the 13th five-year plan based on renewable portfolio standards," Applied Energy, Elsevier, vol. 254(C).
    20. Zhou, Ying & Wang, Lizhi & McCalley, James D., 2011. "Designing effective and efficient incentive policies for renewable energy in generation expansion planning," Applied Energy, Elsevier, vol. 88(6), pages 2201-2209, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ying, Zhou & Xin-gang, Zhao & Xue-feng, Jia & Zhen, Wang, 2021. "Can the Renewable Portfolio Standards improve social welfare in China's electricity market？," Energy Policy, Elsevier, vol. 152(C).
    2. Xu, Jie & Lv, Tao & Hou, Xiaoran & Deng, Xu & Liu, Feng, 2021. "Provincial allocation of renewable portfolio standard in China based on efficiency and fairness principles," Renewable Energy, Elsevier, vol. 179(C), pages 1233-1245.
    3. Ying, Zhou & Xin-gang, Zhao & Zhen, Wang, 2020. "Demand side incentive under renewable portfolio standards: A system dynamics analysis," Energy Policy, Elsevier, vol. 144(C).
    4. Teng, Minmin & Lv, Kunfeng & Han, Chuanfeng & Liu, Pihui, 2025. "A tripartite stochastic evolutionary game for trading strategies under renewable portfolio standards in China’s electric power industry," Renewable Energy, Elsevier, vol. 240(C).
    5. Wang, Delu & Li, Chunxiao & Mao, Jinqi & Yang, Qing, 2023. "What affects the implementation of the renewable portfolio standard? An analysis of the four-party evolutionary game," Renewable Energy, Elsevier, vol. 204(C), pages 250-261.
    6. Zhou, Xianyang & Zhou, Dequn & Ding, Hao & Zhao, Siqi & Wang, Qunwei, 2023. "Low-carbon transition of China's provincial power sector under renewable portfolio standards and carbon cap," Energy, Elsevier, vol. 283(C).
    7. Yanming Sun & Lin Zhang, 2019. "Full Separation or Full Integration? An Investigation of the Optimal Renewables Policy Employing Tradable Green Certificate Systems in Two Countries’ Electricity Markets," IJERPH, MDPI, vol. 16(24), pages 1-17, December.
    8. Karakosta, Ourania & Petropoulou, Dimitra, 2022. "The EU electricity market: Renewables targets, Tradable Green Certificates and electricity trade," Energy Economics, Elsevier, vol. 111(C).
    9. Pineda, Salvador & Bock, Andreas, 2016. "Renewable-based generation expansion under a green certificate market," Renewable Energy, Elsevier, vol. 91(C), pages 53-63.
    10. Kevin Currier & Yanming Sun, 2014. "Market Power and Welfare in Electricity Markets Employing Tradable Green Certificate Systems," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 20(2), pages 129-138, May.
    11. Zeng, Lijun & Du, Wenjing & Zhao, Laijun & Chen, Shuai, 2024. "An inter-provincial coordinate model under Renewable Portfolio Standards policy based on tradable green certificate options trading," Renewable Energy, Elsevier, vol. 234(C).
    12. Zeng, Lijun & Du, Wenjing & Zhang, Wencheng & Zhao, Laijun & Wang, Zhaohua, 2023. "An inter-provincial cooperation model under Renewable Portfolio Standard policy," Energy, Elsevier, vol. 269(C).
    13. Munoz, Francisco D. & Pumarino, Bruno J. & Salas, Ignacio A., 2017. "Aiming low and achieving it: A long-term analysis of a renewable policy in Chile," Energy Economics, Elsevier, vol. 65(C), pages 304-314.
    14. Hu, Yu & Chi, Yuanying & Zhou, Wenbing & Li, Jialin & Wang, Zhengzao & Yuan, Yongke, 2023. "The interactions between renewable portfolio standards and carbon emission trading in China: An evolutionary game theory perspective," Energy, Elsevier, vol. 271(C).
    15. Schusser, Sandra & Jaraitė, Jūratė, 2018. "Explaining the interplay of three markets: Green certificates, carbon emissions and electricity," Energy Economics, Elsevier, vol. 71(C), pages 1-13.
    16. Hu, Fanshuai & Zhou, Dequn & Pan, Yinghao & Sun, Jinghe & Zhu, Qingyuan, 2025. "Impacts of overlapping regulation on the electricity market concerning renewable portfolio standards and carbon emission trading," Renewable Energy, Elsevier, vol. 238(C).
    17. Li, Jialin & Hu, Yu & Chi, Yuanying & Liu, Dunnan & Yang, Shuxia & Gao, Zhiyuan & Chen, Yuetong, 2024. "Analysis on the synergy between markets of electricity, carbon, and tradable green certificates in China," Energy, Elsevier, vol. 302(C).
    18. Zhou, Dequn & Dong, Zhuojia & Sang, Xiuzhi & Wang, Qunwei & Yu, Xianyu, 2023. "Do feed-in tariff reduction and green certificate trading effectively promote regional sustainable development？," Energy, Elsevier, vol. 283(C).
    19. Wu, Jiaqian & Liang, Yiduo & Yu, Songmin & Yu, Lean, 2025. "System dynamics emerging from compliance behaviors coordination of electricity consumers under renewable portfolio standards in China: An agent-based analysis," Energy, Elsevier, vol. 321(C).
    20. Ying, Zhou & Xin-gang, Zhao & Lei, Xu, 2022. "Supply side incentive under the Renewable Portfolio Standards: A perspective of China," Renewable Energy, Elsevier, vol. 193(C), pages 505-518.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:165:y:2022:i:c:s030142152200163x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.