Carbon tax, renewable portfolio Standards, or both? Evaluating policy effectiveness in promoting renewable energy and reducing emissions

The transition to a low-carbon economy is a critical global challenge. However, the relative effectiveness of renewable portfolio standards (RPS) and carbon tax policies, particularly their potential synergistic effects, remains insufficiently understood. Clarifying this relationship is essential for designing effective policies that enhance renewable energy investment and reduce carbon emissions. We develop an optimization framework in which a monopolistic electricity supplier in China invests in a hybrid energy system of conventional and renewable power. We compare profit-maximizing strategies under four policy scenarios: no policy, a carbon tax, an RPS, and a mixed policy (carbon tax + RPS). The analysis examines how these policies shape production and pricing decisions, investment, emissions, consumer surplus, and social welfare. Three main findings emerge. First, both carbon tax and RPS policies significantly encourage renewable energy investment and reduce carbon emissions. Second, mixed policies consistently outperform single policies, demonstrating the highest potential for renewable energy development and carbon emission reduction. Third, social welfare effects under mixed policies vary depending on the carbon tax and renewable energy quota level, with the highest social welfare achieved under low and medium quotas. Importantly, renewable intermittency does not alter the relative ranking of policies, though consumer environmental awareness shifts investment thresholds. Based on these findings, three recommendations emerge: integrating carbon tax with RPS accelerates renewable deployment, phased emission reduction balances neutrality targets with electricity demand, and incentives linking green electricity with consumer awareness strengthen adoption. These results provide actionable policy guidance for China and offer broader insights for economies pursuing a sustainable low-carbon transition.