Measuring implicit carbon prices of renewable energy incentives: Insights from China

Abstract

Implicit carbon prices (ICP), akin to explicit carbon prices derived from carbon pricing instruments, reflect the climate mitigation efforts of specific jurisdictions through non-carbon pricing policies. In this paper, we propose a transparent and systematic methodology for measuring the implicit carbon price related to renewable energy incentives, which represents average abatement cost of CO₂ emissions resulting from renewable support policies. Applying this method, we evaluate China's ICPs of renewable policies from 2009 to 2021. We find that China's country-level ICP rose upward from 2.01 CNY in 2009 to 44.64 CNY in 2021, peaking at 47.70 CNY in 2019. This price level is on par with explicit carbon price in the early stage of China's national emissions trading system, highlighting the country's substantial efforts to address climate change by deploying renewables. Scrutiny of different provinces and renewable generation technologies uncovers great variations in ICPs, which implies significant heterogeneity in abatement costs and policy efficiency within the renewable energy sector. While our analysis focuses on China, the method is easily adaptable to other jurisdictions as a useful tool for assessing mitigation efforts and identifying effective emission reduction instruments.