Effects of carbon tax on energy transition, emissions and economy amid technological progress

Abstract

Although carbon tax has been widely deployed, few papers have simulated carbon tax from the perspective of technological progress in clean electricity generation. Different from existing studies, this paper imposes an improved recursive dynamic computable general equilibrium (DCGE) model with a carbon emission block. Moreover, a new scenario of technological progress in clean electricity generation has been added to analyze the effects of carbon tax on energy transition, emissions and the economy. The conclusions are as follows. First, the combination of carbon tax and technological progress in clean electricity generation is an important way to decarbonize the power sectors. With a carbon tax of 30 CNY/t-CO2, the share of non-fossil energy consumption increases from 19.49 % in 2023 to 22.36 % in 2030 as technology progresses. Second, recycling carbon tax revenues to enterprises is more favorable for economic development than recycling to households. Third, technological progress in clean electricity generation effectively curbs the adverse impact of the carbon tax on the economy, turning the rate of change of GDP from negative to positive. It is recommended that policymakers initially implement a low-rate carbon tax, along with lower corporate and residential income taxes. Attention also needs to be paid to research and development of clean power technologies.