Corrective regulations on renewable energy certificates trading: Pursuing an equity-efficiency trade-off

Highlights: • The regional inequity of renewable energy development under RPS with free REC trade is verified. • Taxation and quotas, two regulations on REC trade are proposed to corrective the inequity. • An equilibrium model is developed and applied to test the energy-economic-equity impacts of the corrective regulations. • The import taxation is proved to be a more cost-efficient corrective regulation than import quotas. -- Abstract: As a common policy tool for reducing the cost of achieving the Renewable Portfolio Standard (RPS) targets, Renewable Energy Certificate (REC) trade can also exacerbate distributional inequity in provincial renewable electricity consumption. In this study, two types of corrective regulations –taxation and quotas on REC importing were proposed to pursue the equity-efficient trade-off. The energy, economic, and equity impacts of these corrective regulations were analyzed by applying a multi-region multi-market equilibrium model to China as a case study. The results verified that a free trade REC market can increase distributional inequity, while both import taxation and import quotas can reduce inequity. Compared to the electricity price premium for renewable energy and voluntary green certificate prices, the social cost of implementing these corrective regulations are within the public's willingness-to-pay. Moreover, the cost curve of increasing equity using the two corrective regulations on REC trade were obtained. Import taxation is found to be more cost-efficient, and therefore it should be the prior policy choice for China's central government comparing with import quotas in designing REC trade mechanisms.