A CGE analysis of carbon market impact on CO2 emission reduction in China: a technology-led approach

Abstract

To offer a scientific basis and reference for policy makers when developing the regulation framework for Chinese national carbon market, this research analyzes the environmental and economic effects of the carbon market from a mid- to long-term perspective in China. Through a computable general equilibrium model, with technological progress as an endogenous variable, this study provides a comprehensive investigation on the relationships between the price of carbon, technological development, emission reduction and economic growth in low, mid- and high emission reduction scenarios. Furthermore, it analyzes the potential of price-setting mitigation measures to create incentives for technological progress. The results indicate that the carbon market will have a positive impact on the RD otherwise, the pressure on technological development will not be sufficiently strong; there is compatibility between carbon intensity reduction and mid- and long-term GDP growth, but it seems impossible to realize the positive effects on both emission reduction and economy development at the early stage. Hence, the carbon market alone will not be a cost-effective instrument for emission abatement and other auxiliary policies will also be needed in the early stages. Meanwhile, selection of reasonable emission reduction scenarios will play a crucial role in achieving the pre-2020 and post-2020 carbon reduction commitments efficiently in China.