Carbon pricing, carbon equity, and the RCEP framework

Abstract

Trade liberalization in the Regional Comprehensive Economic Partnership (RCEP) not only contributes to regional economic growth but also leads to an increase in energy consumption and carbon emissions, which may exacerbate climate change risks. This study aims to explore the carbon pricing issue in the context of the RCEP framework. Additionally, for the sake of carbon equity, we introduce a differentiated carbon pricing scheme based on the cost fairness principle (CPCF), and the unified carbon pricing was used for a cost effectiveness analysis. The empirical analysis was conducted with a global multi-regional computable general equilibrium model. The results show that with the help of trade liberalization, the RCEP's GDP, energy consumption, and carbon emissions may increase by 0.639%, 1.962%, and 1.897%, respectively. The CPCF scheme, wherein developed countries assume the primary abatement burden, can be used to offset the increase in carbon emissions from trade liberalization while RCEP members maintain positive economic growth. The total abatement cost of the CPCF for carbon offsets in the RCEP can be reduced via unified carbon pricing, and the cost-saving effect approaches 24.24%. Unified carbon pricing may result in a carbon price of US $5.83 within the RCEP. As such, this study explores carbon pricing in the context of trade liberalization, and its findings will be valuable for the RCEP to achieve a win-win situation in terms of economic growth and climate change.