Impacts of Clean Energy Substitution for Polluting Fossil-Fuels in Terminal Energy Consumption on the Economy and Environment in China

Abstract

China has initiated various dedicated policies on clean energy substitution for polluting fossil-fuels since the early 2010s to alleviate severe carbon emissions and environmental pollution and accelerate clean energy transformation. Using the autoregressive integrated moving average (ARIMA) regression, we project the potentials of substituting coal and oil with clean energy for different production sectors in China toward the year 2030. Based on the projections, a dynamic multi-sectoral computable general equilibrium model, CHINAGEM, is employed to examine: the impacts of future clean energy substitution on China’s energy production, outputs of non-energy sectors, macro-economy, and CO2 emissions. First, we found that most production sectors are projected to replace polluting fossil-fuels with clean energy in their terminal energy consumption in 2017–2030. Second, clean energy substitution enables producing green co-benefits that would enable improvements in energy production structure, reductions in national CO2 emissions, and better real GDP and employment. Third, technological progress in non-fossil-fuel electricity could further benefit China’s clean and low-carbon energy transformation, accelerating the reduction in CO2 emissions and clean energy substitution. Furthermore, the most beneficiary are energy-intensive and high carbon-emission sectors owing to the drop in coal and oil prices, while the most negatively affected are the downstream sectors of electricity. Through research, various tentative improvement policies are recommended, including financial support, renewable electricity development, clean energy utilization technology, and clean coal technologies.

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