Can learning-by-doing offset negative impacts of carbon pricing in China?

Abstract

This is the first study utilizing carbon tax revenue to the renewable energy generation with Learning-by-doing (LBD) in the CGE model. This investigation demonstrates how induced technologically change (ITC) in the power sector offsets negative impacts on economic growth caused by the carbon tax in China. Business-as-usual scenario (without carbon tax) shows a significant impact of LBD on GDP growth and CO2 emission reduction. Under a policy scenario with carbon tax, the results show that the negative impact on economic growth can be alleviated to less than 0.12%. If total carbon tax revenue was used for the subsidy to wind and solar power, even a positive impact on GDP growth will occur in the long-term. Therefore, the results verified and demonstrated the synergic effect of carbon pricing and the LBD process that economic loss caused by carbon tax could be offset by ITC in the renewable energy power sector. GDP decomposition shows that unexpensive electricity affected by ITC is beneficial to drive development of low-carbon energy, which can mitigate shock of carbon tax on heavy dependence on fossil fuel. This paper also provides policy implications that the LBD process will positively play a key role in energy structural shift under climate policy, making a great effort to climate mitigation.