The Effects Of Price Premium Policies On Emission Reduction And Innovation In The Electricity Industry

Sulfur dioxide(SO₂)is a major air pollutant in China,so Chinese environmental management department have made controlling SO₂ emissions of the industrial sector a top priority for environmental regulation.Despite of the implementation of several command-and-control policies,China's industrial SO₂ emissions have continued to grow at a relatively fast rate.It was only after the implementation of an incentive-based environmental regulation policy in 2006,the Desulfurated Electricity Pricing Premium Program(DEPPP)for coal-fired power plants,that the rising trend of SO₂ emissions was gradually reversed.From an international view,in response to global climate change,all countries have introduced incentive-based policies based on feed-in subsidies to promote the development of renewable energy industry.Although the global installed capacity of renewable energy,represented by wind power and photovoltaic,has experienced significant growth with the support of national incentive policies,there are concerns that excessive subsidies for renewable energy may create a lock-in effect on existing technologies and therefore may hamper more effective technology invention and diffusion in the medium or long term.This paper takes electricity price subsidy policy as the entry point and uses a combination of Chinese prefectual-industry level and cross-country panel data to empirically investigate the impact and mechanism of incentive-based policies on emission reduction in the fossil energy industry and innovation in the renewable energy industry.Specifically,China's DEPPP on sulfur dioxide emission reduction in coal-fired power plants is empirically investigated with difference-in-difference model using Chinese prefectual-industry level panel data,analyzing the challenges faced by the DEPPP,and exploring the feasibility of extending the subsidy policy to other industries with high sulfur dioxide emissions.Secondly,cross-country panel data are used to empirically identify the impact and mechanism of the feed-in tariffs policy on green technology innovation with a Poisson distribution regression model and a negative binomial distribution regression model,and to analyze the heterogeneous effects of the feed-in tariffs policy on different innovation agents and renewable energy types.The paper draws the following key findings.Firstly,China's DEPPP not only induces coal-fired power plants to install more FGD equipments in the short term,but also provides incentives for coal-fired power plants to operate more FGD equipments,which leads to significant reductions in SO₂ emissions in China.In contrast,in the face of stringent SO₂ emission regulations,although the high SO₂ emission industries have added a small number of FGD equipments,the operating rate of FGD equipments installed in these high SO₂ emission industries is low due to the absence of DEPPP.Secondly,China's DEPPP reduces the uncertainty of FGD investment by coal-fired power plants through price subsidies,and provides incentives for coal-fired power plants to operate FGD facilities in accordance with regulations.However,since the marginal cost of desulfurization varies among coal-fired power plants,the DEPPP may not be cost effective in reducing SO₂ emissions.At the same time,the effectiveness of the DEPPP depends on the effective regulation of coal-fired power plants operating FGD equipment.Thirdly,the implementation of feed-in tariffs policy in a country can significantly promote the patent filing activities in the green technology,among which the patent filing activities of enterprises in green technology is more active.At the same time,due to the influence of energy transformation efficiency,geographical distribution and cost of development in different renewable energy sources,the feed-in tariffs policy has a heterogeneous influence on the patent filing activities of different renewable energy types.Fourthly,the feed-in tariffs policy has promoted innovation mainly through the mechanism of international trade in renewable energy components.The feed-in tariffs policy reduces the uncertainty and risk of investing in renewable energy and helps to promote investment in renewable energy generation projects,which in turn leads to an increase in global demand for renewable energy components,and fierce competition in the international market for renewable energy components stimulates the growth of innovation in the renewable energy sector.The innovation of the paper lies in the following two aspects:firstly,it provides and adds a more micro-level empirical evidence from the industry level at the prefectual level to the literature on incentive-based environmental regulation policies in China,which helps to identify the causal effect of a specific policy.Earlier literature focused more on comprehensive incentive-based environmental regulation policies.Previous literatures at the national or provincial level lack industry-specific policies and thus make it more difficult to identify the effects of other policies.The paper takes the DEPPP in the coal-fired power industry as an entry point,and uses a panel dataset at the prefectual level to help establish a more appropriate control group for the coal-fired power industry,so that the effects of other environmental regulations both in the control and treatment groups can be excluded,which helps to identify the causal relationship between the DEPPP and SO₂ reduction in the coal-fired power industry.Secondly,the research on renewable energy incentives is extended from a single-country perspective to a cross-country perspective and provides a more comprehensive analysis for different energy types.The paper investigates the impact of feed-in tariffs policies on green technology innovation by using cross-country data,which fills in the gap in the existing literature with only single-country studies and it also provides more general implications for the findings.At the same time,exploring the heterogeneous impact of feed-in tariffs policies on different green technology innovations in renewable energy enriches the findings of the existing literature.The paper is of great theoretical and practical significance.Firstly,it enriches and complements the existing literature on related studies,sorts out the similarities and differences between domestic and foreign policies on environmental governance and renewable energy development,summarizes the logical framework of related policies,and provides a study of investment decisions on pollution treatment in regulated power sector of China.Morever,the paper has important theoretical implications by extending the existing literature on individual countries to the cross-country level.Secondly,the paper provides an empirical assessment of the role and impact mechanism of price subsidy mechanism on environmental governance and new energy innovation,which provides policy makers with a decision reference on the role of incentive-based policies in environmental governance and green innovation,and then it helps to apply appropriate policy tools to promote environmental quality improvement and energy structure transformation,and it has important practical significance in achieving the carbon peak and carbon neutral goals.