Environmental policy effects of the carbon tax, subsidy, and policy combinations of China's textile industry: Evidence from the DSGE model

Abstract

To evaluate the effect of environmental policies in China's textile industry and explore the optimization path of environmental policies, this paper constructs an open dynamic stochastic general equilibrium (DSGE) model that includes the textile industry's carbon tax and emission reduction subsidy policy. First, based on the model, this paper focuses on the impacts of a single carbon tax policy, a single emission reduction subsidy policy, and a mixture of the two on the economic and environmental quality of the textile industry. Subsequently, the transmission mechanism of the textile industry environmental policy is analyzed, and the optimization suggestions for the effect of China's textile industry policy are put forward. The results suggest that a moderate carbon tax policy can effectively restrain carbon emissions, an excessive one can hinder the industrial economy, and carbon subsidies have the opposite effect. The policy combination of high carbon tax and low subsidy can improve environmental quality in a short time. In contrast, low carbon tax and high subsidies can help to achieve economic development goals. Finally, this study proposes that combining industrial production and pollution emissions and dynamically adjusting the combination of policy tools can enhance the effectiveness of environmental protection policies in the textile industry and realize an actual “win-win” situation regarding environmental quality improvement and economic growth.