Net Economic Benefits from Shifting Consumption, Labor Elasticity, and Productivity Gains During an Accelerated Renewable Energy Transition in China

Abstract

China is the world’s largest greenhouse gas (GHG) emitter, but declining wind and solar energy costs present opportunities to transform its electric power sector. In 2017, China launched a national emission trading scheme (ETS). Evidence to date suggests that the ETS mitigates CO2 emissions and promotes renewable energy deployment but constrains economic growth. These studies, however, do not account comprehensively for economic impacts. Ours is the first to account for three multiplier effects—shifting consumption patterns, job growth with elastic labor supply, and higher total factor productivity (TFP)—when modeling accelerated renewable electricity growth with the ETS in China. Results from a detailed economic forecasting model show low renewable energy costs interacting with the ETS to slash GHG emissions while directly stimulating incremental net positive economic growth by 2030, compared with a business-as-usual scenario that assumes slower renewable cost reductions and no ETS. Accounting for the multiplier effects reveals larger potential benefits, including up to 15.6% of additional GDP growth (over business as usual) by 2030 when shifting consumption patterns, job growth with elastic labor supply, and higher TFP are all considered. These results suggest that China should accelerate its clean energy transition, not only for the air-quality and climate benefits, but also for the broad and positive impact on innovation, employment, and economic growth.