A simulation study of China's imposing carbon tax against American carbon tariffs

Abstract

Abstract This study proposes two types of simulation scenarios aimed at carbon emission reduction which China can adopt in response to carbon tariff threats from the US. These are to take the same carbon tax policy as the United States (that is $40 per ton of carbon tariffs) and differentiated tax policy (that is, the “common but differentiated responsibilities” and product competitiveness point of view, US imposes a $40 per ton carbon tax on domestic products, while China imposes a $9 per ton tax on domestic products). Setting four specific policy scenarios (the United States takes a carbon tax collection only on products that are produced from their own country; the United States imposes a carbon tax both on domestic products and on products exported from China; China and the United States adopt the same carbon tax policy for their own domestic products; and China and the United States adopt differentiated carbon tax policies for their own domestic products), this study uses an Energy-Environmental Version of the Global Trade Analysis Project model (GTAP-E) to explore whether China's active emission reduction can be an effective choice to deal with the US carbon tariff threat. The results of the research showed a 1.4% fall in China's GDP resulting from a $40 per ton of carbon tariff on Chinese products although such move by China is to avoid carbon tariffs on China's exports to the United States. This adverse economic effects thus makes this method an ineffective way of dealing with the threats. When China imposes a carbon tax of $9 per ton on domestic products, China's real GDP and residents' welfare decline but are effectively controlled, and the world's total carbon dioxide emissions also reduce considerably. Therefore, in this way, China can effectively deal with the threat of US carbon tariffs. This paper applies the GTAP-E model to refine the research different from existing research on model building. It analyzes the change of China's economy, carbon dioxide, and industry output and import under the different situations. This will help take reasonable measures in our country when dealing with the carbon tariffs.