The high consumption of fossil fuels (e.g., petroleum and natural gas) followed the industrial revolution and the introduction of new technologies and modern transportations. The high utilization of natural resources increases the environmental impact and climate change become a critical problem all over the world. Taiwan has set an aggressive target and proposed a set of greenhouse gas (GHG) control strategies to reduce carbon dioxide (CO2) emissions. Currently, Taiwan, similar to most developed nations, is highly dependent on thermal power which accounts for 70% of total primary energy supply in 2009. The data show that Taiwan needs to actively seek the renewable energy sources and promote effective policies to reduce carbon emissions, such as policies to promote the development of the solar energy industrial sector and utilization of solar energy products. The objective of this paper is to develop a dynamic cost-benefit evaluation method for administrative regions to review the effectiveness of their renewable energy policies. This paper develops system dynamics (SD) models to construct and simulate causal feedback relationships of solar energy applications (e.g., photovoltaics (PV) systems and solar water heating or lighting systems). The SD models, with causal feedback loops considering the renewable policies, have been developed and verified as workable with environmental and economic development experts. The results describe the relationship between the renewable policies, the impacts of economy, and the effects of carbon emissions. Afterward, the SD models are run with simulated data to analyze the required costs and related effects of carbon reduction policies. This research provides a formal methodology, reference models, and analytical results for evaluating renewable energy policies and strategies in different economic regions with different input and output factors.