A factorial CGE model for analyzing the impacts of stepped carbon tax on Chinese economy and carbon emission

In China’s 2019 VAT reform, the VAT rate for manufacturing was adjusted from 16% to 13%. This inevitably promotes manufacturing production and triggers a substantial increase in carbon emissions. Would carbon tax be an effective policy tool to offset the negative externalities of the VAT reform on carbon emissions? We construct a multi-regional dynamic-recursive computable general equilibrium (CGE) model to evaluate this possibility and to investigate the potential impacts on the economy, energy, and environment arising from this reform. The scenarios set includes the VAT reform policy, a carbon tax, and three combined policies. The results show that while China’s VAT reform is a positive fiscal policy that can boost long-lasting macroeconomic development, it has a negative impact on environmental protection. A carbon tax can significantly curb traditional energy consumption and emissions, but it would hinder economic development. Combined policies yield ‘double dividends’, that is, a long-run increase in macroeconomy and emissions reductions will be achieved, helping China to attain its Intended Nationally Determined Contributions goal. The combination of VAT reform and a stepped carbon tax maintains a more stable economic growth while sustaining carbon emission abatement.

In order to cope with the climate problem of global warming and respond to the call of the United Nations to reduce carbon emissions, China has put the goals of carbon peaking in 2030 and carbon neutrality in 2060 forward and has promoted the transformation and upgrading of the economic development mode and the green, low-carbon development path. In international practice, various countries have widely adopted the carbon trading market and tax policy as effective carbon emission reduction mechanisms and tools. In 2012, China implemented a carbon trading pilot project and established a national unified carbon trading market in 2021 based on accumulated experience, but the carbon tax has not yet been introduced. According to the international carbon tax practice and the current situation in China, the introduction of the carbon tax is conducive to the establishment of a sound carbon emission reduction system and the promotion of green and low-carbon development from the macro-control level. In this paper, we analyzed the necessity and theoretical research of carbon tax policy in China and explored the feasibility of a carbon tax in China by combining the internationally advanced carbon tax practice. By establishing a CGE model at the carbon-tax level and using the social accounting matrix (SAM) as the database, we simulated the impact of implementing carbon tax policies under different carbon tax prices on China’s environmental and economic benefits and whether the double-dividend effect of a carbon tax can be effectively realized. The results show that the carbon tax will help reduce carbon emissions and significantly affect carbon reduction. However, in the short term, it has a negative effect on economic development. Accordingly, it is suggested that a scientific carbon tax system should be established according to national conditions, and a carbon tax should be introduced at a lower carbon tax price. The carbon tax should be supplemented by carbon tax subsidies to ensure effective carbon emission reduction so as to alleviate the inhibiting effect on economic development. At the same time, the compound carbon emission reduction mechanism of carbon trading and tax should be improved to lay the institutional foundation for the early realization of the carbon neutrality target.

Carbon emission reductions and sustainable development have become hot issues in international conferences. As the most direct instrument for carbon emission reductions, the carbon tax has not been favored by policymakers because of its negative effect on the economy. To achieve low-carbon sustainable development, we use a computable general equilibrium (CGE) model to simulate carbon tax recycling under different energy transfer efficiency improvements to achieve triple dividends of carbon emission reductions and social welfare improvement. This paper contributes to the literature on recycling carbon tax for triple dividends in China. The simulation has three main findings: (i) the carbon tax revenue recycling toward reducing the resident income tax rate yields triple dividends without any energy transfer efficiency improvement; (ii) the losses of GDP and social welfare are exaggerated. Meanwhile, the carbon tax brings down carbon emissions and total carbon intensity of GDP with a mild impact on the Chinese economy; (iii) the improvement of energy transfer efficiency demonstrates the advantages of recycling carbon tax and is essential for achieving triple dividends. Thus, we propose the following policy recommendations: (i) the pilot carbon tax mechanism should be launched in high-carbon sectors (such as coal) and then implemented in other industries gradually; (ii) the government should strongly support the technological improvement of energy transfer efficiency in order to achieve sustainable development.

The rapid development of energy consumption and carbon emissions in the construction industry poses an enormous and negative challenge for China’s energy and environment. While maintaining moderate economic growth, it is particularly important to realize energy conservation and carbon reduction. Carbon tax policy, a direct tool to reduce carbon emissions, can effectively alleviate the environmental issues caused by construction activities. However, relying solely on a single method is insufficient to handle the complicated circumstances of China’s construction industry. This study explores the influence of carbon tax on the construction industry through adjustments to tax rates via developing a Computable General Equilibrium (CGE) model. Then, it analyzes how the carbon tax affects the economic and environmental variables by designing scenarios for recycling tax revenue and improved energy efficiency. The results indicate that the carbon tax rate of 40 RMB/t-CO2 is the most appropriate. At this tax level, the negative impacts of energy demand and emissions reduction on macroeconomy and construction industry are minimized. It was also determined that carbon tax revenue recycling to households and sectoral investment will realize the “weak double dividend” effect on the construction industry. Furthermore, improving energy efficiency in the construction industry will demonstrate the additional advantages of carbon tax. This study serves as a theoretical foundation for the Chinese government to develop various energy strategies to achieve low-carbon development in the construction industry.

Analysis of the impacts of carbon neutral policy portfolios on the economy, environment, and residents' welfare based on computable general equilibrium models

CEEEA2.0 model: A dynamic CGE model for energy-environment-economy analysis with available data and code

Guangdong, as China’s most affluent province, which is representative in terms of its industrial and energy consumption structure, will deal with an important issue about how to change its environmental management policies from command-and-control strategies to incentive-based ones and how to exert its effects to the greatest extent possible in the new situation of the impending imposition of an environmental tax. By establishing an energy Computable General Equilibrium (CGE) model for Guangdong Province, and setting up various taxation and tax refund scenarios, this research simulates the energy saving and emission reduction effects imposed by the imposition of an energy tax or carbon tax at various tax rates in Guangdong Province, and analyzes the mitigation effects upon an economic system by various tax refund plans. The research proves that when the energy tax rate is at 100–200 yuan/tce (ton coal equivalent) or carbon tax at 50–100 yuan/t CO2, the energy consumption of Guangdong Province is reduced by 5.8–11.21%, and carbon emission is reduced by 5.94–11.61%. The energy saving and emission reduction effects of the carbon tax surpasses that of the energy tax under the equivalent tax revenue with even fewer significant negative impacts upon the economy, contributing to the capital transfer towards non-energy intensive industries; thus, appropriate and accurate tax refund plans can alleviate the negative impacts of taxation upon the economy in Guangdong Province.

Impact of carbon tax on energy sector segmentation under different closures: A case study of China via CGE model

The research imperative for this thesis is climate change; in particular, whether the policies that Australia implemented to meet its Kyoto emissions reduction commitments were both reasonable for industry and mindful of the risks of unintended consequences. Australia first implemented its carbon-pricing mechanism (CPM) in July 2012 and repealed it two years later with a view to pursuing an abatement purchasing scheme. The CPM was informed by computable general equilibrium (CGE) modelling founded on the neoclassical theory of general equilibrium, despite such modelling being criticised for theoretical and empirical weaknesses. A primary criticism is the representation of both firm and consumer decision-making as having rational expectations or “perfect hindsight” (Sanstad & Greening, 1998). Another is an over-reliance on exogenously defined parameters which are necessary to test the effect of policies or conditions if the past is not a good guide to the future (Sanstad & Greening, 1998). Despite the concerns, CGE modelling informed the Australian government’s climate policy. Many of the industries which incurred a carbon price did not have the structures necessary to qualify for the emissions intensive trade exposed (EITE) protection that other global schemes had introduced to prevent carbon leakage or loss of competitiveness. Red meat processing, which in Australia encompasses the processing of beef, lamb, sheep meat and goat meat for export and domestic consumption, is one such industry. It is a traditionally low margin industry exporting over seventy percent of production whilst operating in a price sensitive market with high levels of substitution. It is impacted by a dependence on export markets, commodity cycles, extreme weather, exchange rate movements, and global market challenges. In 2012, under the Clean Energy Policy, the industry’s largest red meat processors (RMP), who triggered a threshold, paid for their GHG emissions without direct shielding. It is this industry’s dynamic complexity that makes it anomalous amongst its global competitors and difficult to represent using traditional modelling approaches. The industry’s resilience under a carbon price (tax) is part of a larger dynamic story and it is the complexity of the story that suggests that CGE models may not be the best models for analysing climate policy impacts. In an alternative and supplemental approach, this thesis investigates whether a systems thinking framework and system dynamics methodology can be applied to assessing the impact of the CPM on the red meat processor to better understand the influence on industry of pricing carbon. A simulation model of Australia’s largest RMP and Australia’s beef cattle production system has been developed. Life cycle assessment has enabled a partial carbon footprint to be calculated which informs the simulation’s emissions parameterisation. Using a benchmark of net income, the simulations evaluate the CPM by answering the primary research question: “Can Australia’s carbon tax policy enable red meat processors not eligible for EITE protection (and so liable to pay the carbon price) to remain financially competitive in their domestic and global environment?” Implicit in this primary research question is a secondary question: “Will the carbon price and associated legislation promote greenhouse gas mitigation?” The thesis has contributed: • To the debate on the use of system dynamics as a compliment to computable general equilibrium models. Capturing industry dynamics by modelling feedback, delays and non-linearities addresses some of the criticisms levelled at CGE models. • A firm level application of system dynamics that enables an ex-ante investigation of the impact of Australia’s carbon pricing policy on the financial competitiveness of Australia’s red meat processing industry. • The development of a beef supply chain system dynamics model specific to Australia. •An analysis of global carbon-pricing policies which highlights the difference between Australian and global approaches to taxing emissions. • Input to the data available on red meat processing emissions. • An insight into the effectiveness of policy measures to induce mitigation, achieved through the calculation of before and after tax carbon footprints. •Transparency in the dynamics that flow from policy decisions through combining modelling with a case study. Forrester (2013) suggested that a system dynamics model theorises the context it represents. This thesis contributes to the general theory of economic behaviour of the red meat industry and provides a justification for a supplemental approach

In the absence of sustained federal leadership to address climate change, many US states and cities have implemented their own climate policies. In 2018, the State of Hawai‘i set a goal of sequestering more greenhouse gases (GHGs) annually than emitted no later than 2045. This study builds a Computable General Equilibrium (CGE) model to understand how a state-level carbon tax in Hawai‘i could contribute to meeting this objective and how it would change household welfare for five different income groups. Against a baseline of existing federal and state GHG-related policies, we find that if Hawai‘i were to adopt a carbon tax at the level of the 2021 federally-specified social cost of carbon, Hawai‘i’s cumulative emissions would decline by an additional 10% from 2025 to 2045. Changes in group welfare depend heavily on whether carbon tax revenues are paid to households as equal-share dividends or used for increased state spending. If revenues are returned to households, the tax is progressive and benefits the average household in all five income groups. This is primarily because visitors pay the carbon tax while on a Hawai‘i vacation; their contributions amount to approximately one-third of collected revenues. Our findings are relevant to tourism-intensive regions, economies with demand-inelastic GHG-intensive export sectors, and island economies. Key policy insights A carbon tax for Hawai‘i set at the federal social cost of carbon – starting at $56/MtCO2e in 2025 and increasing to $79/MtCO2e in 2045 ($2020) – would reduce cumulative GHG emissions by 10% relative to the baseline from 2025 to 2045. When carbon tax revenues are paid as equal-share dividends to Hawai‘i households, the incidence of the carbon tax policy is progressive across income groups (by quintile). Carbon pricing with equal-share dividend payments results in net welfare gains for all household income groups, in part due to the large visitor contribution to carbon tax revenues. These findings are relevant to tourism-intensive regions, economies with demand-inelastic GHG-intensive export sectors, and island economies. State government carbon pricing programmes that recycle revenues towards households have the potential to mitigate GHGs and deliver broad benefits to households, which could speed regional and national climate action.

This paper investigates the development trends and variation characteristics of China’s economy, energy consumption and carbon emissions from 2007 to 2030, and the impacts on China’s economic growth, energy consumption, and carbon emissions under the carbon tax policy scenarios, based on the dynamic computable general equilibrium (CGE) model. The results show that during the simulation period, China’s economy will keep a relatively high growth rate, but the growth rate will slow down under the benchmark scenario. The energy consumption intensity and the carbon emissions intensity per unit of Gross Domestic Product (GDP) will continually decrease. The energy consumption structure and industrial structure will gradually optimize. With the economic growth, the total energy consumption will constantly increase, and the carbon dioxide emissions are still large, and the situation of energy-saving and emission-reduction is still serious. The carbon tax is very important for energy-saving and emission-reduction and energy consumption structure optimization, and the effect of the carbon tax on GDP is small. If the carbon tax could be levied and the enterprise income tax could be reduced at the same time, the dual goals of reducing energy consumption and carbon emissions and increasing the GDP growth can be achieved. Improving the technical progress level of clean power while implementing a carbon tax policy is very meaningful to optimize energy consumption structure and reduce the carbon emissions, but it has some offsetting effect to reduce energy consumption.

Multi-objective optimization of environmental tax for mitigating air pollution and greenhouse gas

Water poverty poses significant challenges to regional environmental conservation and socioeconomic development, with water footprints providing valuable insights into assessing the severity of this poverty. A carbon tax, an environmental charge imposed on the carbon emissions from energy sources, is known for quickly reducing emissions at minimal public expense, and can indirectly influence water footprints. While past research has detailed the previous characteristics of water footprints, it has not yet predicted how these characteristics might evolve under the influence of a carbon tax. In this paper, variations in the water footprint are examined using an input-output model, and the impacts of carbon taxes on water footprints are forecasted through a computable general equilibrium (CGE) model. CGE models are essential for low-carbon policy design, enabling policymakers to simulate the socioeconomic and environmental impacts of interventions, thereby offering insights to refine integrated strategies for emissions reduction and water footprint efficiency. The simulation results indicated in the case of imposing carbon tax simulation, the coal industry experienced the largest reduction in virtual water content at 34.81%, followed by heavy industry and transport. Additionally, the carbon tax has a more pronounced effect on virtual water content in secondary industries compared to primary and tertiary industries. With carbon taxes set at 100 and 200, the total water footprint decreased by 3.15% and 4.72%, respectively, which corresponds to a reduction in water usage per person in China by 3.2% and 4.8%. Furthermore, the simulation also suggested that social welfare reached its maximum value of 181.36 when the carbon tax was 196 RMB/t-CO2. Our research also provides a new point of view on assessing the effectiveness and fairness of carbon taxes and can further be used to develop compensation strategies that tackle emission and water limitations in the energy sector, thereby optimizing the benefits for water conservation that arise from emission reduction measures.

Exploring the impacts of a carbon tax on the Chinese economy using a CGE model with a detailed disaggregation of energy sectors

This study analyzes the macroeconomic effects of limiting carbon emissions using computable general equilibrium (CGE) model in the Algerian economy. Doing so, we developed an environmental computable general equilibrium model and investigate carbon tax policy responses in the economy applying exogenously different degrees of carbon tax into the model. Three simulations were carried out using an Algerian social accounting matrix. The carbon tax policy illustrates that a 1.52 % reduction of carbon emission reduces the nominal GDP by 1.26 % and exports by 3.04 %; a 2.67 % reduction of carbon emission reduces the nominal GDP by 1.92 % and exports by 4.86 %; and a 3.72 % reduction of carbon emission reduces the nominal GDP by 3.79 % and exports by 6.90 %. Imposition of successively higher carbon tax results in increased government revenue from the baseline by 23.68, 50.18, and 76.38 %, respectively. However, fixed capital investment increased in scenario 1a (first) by 0.23 % but decreased in scenarios 1b (second) and 1c (third) by 0.35 and 2.03 %, respectively, from the baseline. According to our findings, policy makers should consider initial (first) carbon tax policy. This policy results in achieving reasonably good environmental impacts without losing the investment, fixed capital investment, investment share of nominal GDP, and government revenue.