Impact of combined environmental policies on carbon emission reduction: A system dynamics analysis

Abstract

Carbon Emission Trading (CET), Energy Consumption Trading (ECT), and Financial Subsidy (FS) policies are essential mechanisms for mitigating carbon emissions and play a critical role in the development of China's electricity and carbon markets. However, the extent to which CET, ECT, and FS—representing typical command-and-control and market-incentive regulatory approaches—affect carbon emission reduction in China remains inadequately explored. This study analyzes and predicts the impacts of various combinations of CET, ECT, and FS policies on carbon emission reduction by developing System Dynamics (SD) models of the energy, electricity, and carbon markets. The results indicate the following. First, the ECT policy significantly influences carbon emissions, the supply of CET, and expected CET sales and purchases. Furthermore, ECT and CET policies exhibit an interconnected effect. Second, carbon emissions increase proportionally with the combined impacts of ECT, FS, and CET policies, projected to peak in 2026–2027. By 2050, carbon intensity is expected to be 87.64% lower than in 2026. Third, the installed capacity of thermal power plants and renewable energy generation enterprises demonstrates a consistent growth trend. By 2050, the installed capacity of renewable energy generation enterprises is expected to increase by 85.06%, while their power generation capacity is anticipated to rise by 142%.