Carbon Emission Trading and the Expansion of Renewable Energy: Pathways to Energy Sustainability

Understanding the policy drivers of green power growth is vital for advancing energy transition and achieving carbon neutrality. This study examines the impact of China’s Carbon Emissions Trading Pilots (CETP) on the development of wind and solar power using county-level data from 2005 to 2017. The results show that the CETP leads to an additional 66.7% increase in installed capacity and a 79.7% increase in power generation in the pilot counties compared with non-pilot counties. Further analyses reveal that this growth primarily results from the substitution effect between coal-fired and green power induced by the CETP. Specifically, this substitution effect is driven mainly by the increasing marginal cost under the benchmark allowance allocation based on actual power generation, rather than by the carbon price level. Hydropower attenuates the substitution effect by serving as an alternative power source, and coal consumption amplifies this substitution effect. The findings offer significant policy implications in CET design and enforcement to promote green power growth.