According to the legislative system stipulated in China’s constitution and legislative law, there are six levels of legal validity, which are, in descending order, the constitution, basic law, general law, administrative regulations, local laws, and administrative rules. The significance of the legal ranking arrangement is that, in legislation, the higher law can be used as the legislative basis of the lower law; in the application of law, if the lower law conflicts with the provisions of the higher law, the higher law must be applied. This is no exception in the field of renewable energy. China has gradually formed a system of renewable energy regulations and some more effective legal systems ^[1]. However, no specific legislation on renewable energy subsidies has been introduced but is instead mostly found in various departmental regulations and normative documents. Moreover, the legal status of renewable energy subsidies is relatively low, and the framework of a systematic subsidy system has not yet been constructed. Therefore, the legal system in this section refers to the “law” in a broad sense.

The Renewable Energy Act is the highest-ranking law in the renewable energy subsidy regime. It has undergone one amendment, and supporting policies such as renewable energy subsidies are constantly being adjusted. At present, the settlement cost of renewable energy feed-in tariff is divided into two parts, one part of the cost is calculated according to its feed-in tariff and the benchmark tariff of coal-fired units in the province where it is located, and the other part of the cost is the state subsidy fund, which can only be obtained after it is included in the national subsidy catalogue and the relevant funds are allocated to the grid enterprises by the finance department. In addition, the Energy Conservation Law also mentions the use of state financial subsidies, pricing policies, taxation policies, and special fund incentives to encourage the development of new energy sources, ensure the safe development of energy in China and meet the basic needs of people’s lives. In the field of electricity, the Electricity Law, through the “Electricity Price and Tariff”, directly regulates the feed-in tariff of power generation enterprises under special circumstances by the State Council, and makes basic regulations on the mutual supply tariff, sales tariff, classified tariff, and time-sharing tariff of power generation enterprises, providing a legal basis for the renewable energy feed-in tariff and sharing mechanism. In addition, the Budget Law also has an impact on the system of renewable energy subsidies. Although the Budget Law does not directly regulate renewable energy subsidies, the two are closely related, as most of the renewable energy subsidies come from the special funds for renewable energy development. The Budget Law, as the superior law of the Interim Measures for the Management of Special Funds for Renewable Energy Development, has a guiding role in regulating renewable energy subsidies and is also of great value in constructing the renewable energy subsidy system.

China has long been concerned about the development of the renewable energy industry and has introduced a series of policies from renewable energy industry planning, policy support, and fund allocation and use to actively promote the development of renewable energy. The details are shown in Figure 1.

In order to meet energy demand and promote energy conservation and emission reduction, the Medium and Long-term Development Plan for Renewable Energy in 2007 clarified the general objectives for the development of the renewable energy sector in the next fifteen years, through the implementation of a fixed tariff acquisition system, a mandatory market quota system, increased investment subsidies for renewable energy, and the expansion of tax concessions, in order to increase the proportion of renewable energy in energy consumption. In 2022, the National Development and Reform Commission and the Energy Bureau proposed in their Opinions on Improving Institutional Mechanisms and Policy Measures for the Green and Low-carbon Energy Transition to establish a national unified electricity market system on the supply side, improve the electricity trading mechanism that favours the priority use of renewable energy, and establish a national electricity market system on the demand side. On the supply side, the National Development and Reform Commission and the Energy Bureau proposed to establish a national unified electricity market system, improve the electricity trading mechanism that favours the priority use of renewable energy, and explore the establishment of a market-based demand response compensation mechanism on the demand side.

In order to improve the efficiency of the use of renewable energy development funds, the State Council and the Ministry of Finance have issued measures involving the collection and use management of renewable energy development funds and the management of renewable energy tariff surcharge subsidy funds in accordance with the Renewable Energy Law, making detailed provisions on the collection, use, management, and supervision of funds related to renewable energy development. However, these legal provisions belong to the same legal level and only stay at the level of temporary measures, with lower legal effect and less stability. The 2022 Implementation Plan on Promoting the High Quality Development of New Energy in the New Era clearly points out the need to improve the financial and fiscal policies to support the development of new energy, optimise the use of financial funds, improve financial-related support measures, and enrich green financial products and services.

The regulations related to renewable energy subsidies in China are scattered among various types and levels of laws, regulations, and policy documents, and a unified and complete system has not yet been constructed. For example, the system of renewable energy tariff subsidies has both overall provisions made by the Electricity Law and specific special provisions designated for different types of renewable energy, and there is a certain conflict of application. Moreover, the provisions of the law on the renewable energy subsidy system are too principled and vague, mostly oath provisions lacking practical operability; the provisions of various normative documents are rather one-sided and uneven in content, so if you want to grasp a system completely, you need to sort out various relevant documents and integrate various fragmentary provisions, which is against the systemic requirements of system construction and is not conducive to the understanding and application of relevant subjects. In addition, there are many departments promulgating relevant documents, which will easily lead to a situation of “nine dragons ruling the water”, bringing certain difficulties to the systemic development and specific application of the system. In addition, the various measures and systems currently in place for the renewable energy industry are complex, and their modes of operation and roles may even overlap ^[2].

Energy law and energy policy are two of the most important institutional tools for energy development and use in China, and they are intertwined, coupled, and symbiotic. In the field of renewable energy subsidies, the number of laws is much smaller than that of policies, in which the laws on renewable energy subsidies are mostly based on principles, while the policies are more specific. Throughout the renewable energy subsidy policies, most of them are based on temporary measures, which are not high level, stable enough, nor transparent enough, thus affecting the implementation effect of the system. In addition, the connection between laws and policies is not completely close, which is not conducive to the establishment of a long-term institutional mechanism for renewable energy development. At the same time, the content of various specific policy documents is rather disorganised, with multiple departments issuing separate documents, resulting in a lack of overall framework and global planning and a weak interconnection between them.

A glance at the institutional systems of other countries shows that there is a unity of substance and procedure. A scientific and efficient system should be an organic unity of substantive and procedural content. In contrast, the legal systems or policies currently in place in China rarely involve procedural content, and if they do, they are mostly based on principles. The impact on enterprises and consumers is more direct in this case ^[3]. China’s renewable energy subsidy system is policy-based, with a weak system and a lack of transparency, and a lack of procedural requirements that could further undermine the effective implementation of the policy.

In addition, the existing system lacks an effective evaluation and monitoring mechanism for the payment of renewable energy subsidies, which does not provide timely feedback on the extent to which the payment of subsidies has promoted renewable energy and its industry, and thus does not allow for accurate predictions on how much to pay and when to reduce or stop payment, which is not conducive to the scientific development of the withdrawal mechanism of renewable energy subsidies. At the same time, there is a lack of a system for evaluating and monitoring renewable energy development funds, with no specific laws or regulations and monitoring methods scattered throughout various legal documents. Usually, the monitoring of the development fund mainly relies on annual audits and occasional inspections by the Ministry of Finance, which is a single form of monitoring, resulting in a lack of monitoring strength and a failure to form a diversified monitoring mechanism to achieve the essential goal of supervision.

After the promulgation of a series of policy documents, the implementation effect may not be as effective as expected, as in the case of new energy subsidy arrears that cannot be met ^[4]. China’s current renewable energy subsidies are relatively limited, resulting in the rapid development of the industry in recent years, while also facing the constraints of subsidy arrears. Since 2016, the development of the renewable energy industry has entered an explosive phase, and although the tariff surcharge standard has been raised, it is difficult to catch up with the speed of new installations, and the funds received are lower than the actual demand for subsidies. In addition, it is difficult to collect all the electricity price surcharge, and the perennial collection rate of captive power plants and local power grids for electricity is less than 85%, resulting in a widening renewable energy subsidy gap. By the end of 2021, the total subsidy arrears for renewable energy generation will be around RMB 400 billion ^[5]. Continuity and stability of funding are prerequisite for an effective subsidy system, and “only adequate renewable energy subsidy funding can attract sufficient resources to the renewable energy sector”.

Article 24 of the Renewable Energy Law defines the sources of renewable energy development funds as: “including the special funds arranged by the State and the additional income from renewable energy tariffs collected in accordance with the law”, which has expanded the sources of renewable energy subsidies in China compared to 2005, but there is still room for further development of policy innovations, such as expanding the sources of renewable energy subsidies, such as to local finance, NGOs, and the public, that needs to be further explored.