How the new energy industry contributes to carbon reduction? -Evidence from China

Abstract

New energy is an inevitable choice to cope with global climate change. China has invested heavily in new energy, but it still faces enormous pressure to reduce emissions. The effectiveness and path of new energy industry development still need to be solved. This paper studies the relationship between the development of new energy industry and carbon emissions. A theoretical model of new energy firms' production behaviour was constructed, reflecting that the internal carbon emissions of the new energy industry mainly depend on its cost structure and R&D intensity. Specifically, part of the carbon emission caused by scale effect comes from direct capacity construction, and the other part comes from the production-cost effect of R&D. Based on the provincial panel data in China from 2005 to 2019, empirical tests are carried out from two aspects of scale effect and technology effect. Results show that the scale expansion has an inverted U-shaped relationship with carbon emissions, which is supported by the regression with GDP as the threshold variable. The effect of new energy technologies in reducing emissions is continuous. The threshold for technology to play a role in reducing emissions is smaller than the threshold for scale. The findings explain the expansion of the new energy industry in the early stages may lead to an increase in carbon emissions. Our study provides important insights that the scale and technology are two dimensions that cannot be ignored in the process of energy transformation. It is necessary to act in the reasonable range and pay attention to the accumulation of technology innovation and the orderly expansion of production capacity.

Keywords: New energy; Scale effect; Technology effect; Threshold regression.