Carbon pricing and income inequality:A case study of Guangdong Province, China

Abstract

The Chinese government is increasingly concerned about the impacts of climate change mitigation policies on social equity. Carbon pricing is an effective measure for reducing carbon emissions, but its distributional effects may exacerbate inequity among different rural and urban households. As a leading carbon pricing pilot area in China, Guangdong Province is the subject area of this paper. By using the environmentally extended input-output model and calculating the Suits index, this study aims to compare the carbon price payments of ten income-level households in Guangdong Province in 2012 and 2017. The results indicate that higher-income households need to pay more for carbon emissions. Total carbon pricing in Guangdong is slightly progressive, and the progressivity increased from 2012 to 2017. Thus, the implementation of carbon pricing may not intensify the inequality between urban and rural areas and between different income groups. Only carbon pricing on residential energy consumption is regressive, which could be compensated by revenue recycling policies. The findings of this study contribute by offering a positive theoretical basis for China’s future policies on carbon pricing such as carbon taxes.