Examining the economic and environmental effects of emissions policies in China: A Bayesian DSGE model

Abstract

The purpose of this study is to build an energy-emissions-economy dynamic stochastic general equilibrium model to examine the economic and environmental effects of the carbon tax and carbon intensity target. The model is calibrated to China’s economy. The results show that both the carbon tax and carbon intensity target policies have a negative effect on China’s economy and environment. However, the carbon tax exerts more negative effects on the economy and environment than the carbon intensity target. Moreover, the carbon tax shock lasts shorter than the carbon intensity target shock. The findings additionally indicate that the effects of the increase in the productivity of energy sectors are greater than those of the increase in the productivity of other sectors. Thanks to the low-carbon technology shock, China’s carbon dioxide emissions will reduce and output will increase. Taken together, this study highlights the key policy implications associated with the results.