The Chinese government plans to implement Carbon cap-and-trade mechanisms and Renewable portfolio standards in order to promote the transition of low-carbon. Hence, this paper constructs a monopolistic utility company model based on four policy scenarios namely: Reference scenario (FREE), Carbon cap-and-trade mechanisms (CAP), Renewable portfolio standards 𝑐𝑛𝑟 (RPS), and Mixed scenario (MIX). The mentioned policy scenarios were used to test the impact of various policy situations on utility company investment decision considering the existence of renewables, new conventional energy sources (such as natural gas) and conventional energy sources (such as coal) in the market. In addition, social welfare under each scenario through numerical simulations, together with the impact of key parameters related to emission reduction mechanism on social welfare were compared. The results show both CAP and RPS can effectively reduce carbon emissions. In terms of renewable energy promotion, the effect under MIX is the best comparatively. Further, MIX recorded the highest level of social welfare during the present stages of China’s low-carbon transition. The study provides some new suggestions for policy-makers.
Keywords Carbon cap-and-trade mechanisms, Renewable portfolio standards, Renewable energy investment, Carbon emission, Social welfare