Co-benefit comparison of carbon tax, sulfur tax and nitrogen tax: The case of China

Abstract

While addressing climate change is a coarse and urgent problem for all humanity, developing nations also face tremendous pressure on environmental pollution prevention and restraint. Controlling both greenhouse gas (GHG) emissions and air pollution is an important strategy to address the dual issues of climate change and environmental degradation. To make full use of the co-benefits of GHG and pollutant emission reduction, this study uses a computable general equilibrium model to simulate and explore the impact of a carbon tax, sulfur tax, nitrogen tax and their combination on China's various environmental emissions and socioeconomic factors. The results show that the climate synergy brought by levying the sulfur tax/nitrogen tax can fully cover the carbon intensity target. In particular, when only a single nitrogen tax is imposed, the CO2 and SO2 emission reduction targets can be automatically achieved simultaneously. On the premise of fulfilling the reduction target, a governance plan that considers synergies will save nearly 50% of the socioeconomic and welfare costs compared to the case of independent governance. The design of the synergistic tax plan considers a nitrogen tax as the base. Moreover, the tiered tax levying way that gradually increases over time and the tax recycling way of reducing indirect taxes on production can effectively bring down socioeconomic losses, achieve a “double dividend” benefit, and promote the coordinated development of the environment and economy.