Evaluating green finance policies for low-carbon transitions: A study of China’s renewable energy and fossil fuel reduction strategies

This study investigates strategies to reduce fossil fuel consumption and promote renewable energy within the global shift towards a low-carbon economy, focusing on China. Using a dynamic recursive computable general equilibrium (CGE) model, the research assesses the effects of various green finance policies, including renewable energy certificates trading (RECT), fossil energy use rights trading (FET), and renewable energy subsidies (RES), on advancing a low-carbon economy. The results show that fossil energy use rights, distributed via the game equity fixed-cost allocation model (Game-EFCAM), cause minimal fluctuations across sectors, ensuring stability for most industries. Although RES can mitigate the short-term negative impacts of FET and RECT on per capita GDP, the long-term success of these green finance policies depends on government backing for innovation and the improvement of industrial structures. Moreover, by restructuring production in fossil fuel-dependent industries and strengthening the role of the tertiary sector and renewable energy, FET and RECT policies help reduce reliance on fossil fuels. These policies also lead to significant reductions in carbon emissions, improving environmental outcomes, with RES further enhancing these benefits. This research provides valuable insights for other developing nations undergoing similar energy transitions and informs policy-making to support China’s low-carbon economic growth.