How will sectoral coverage in the carbon trading system affect the total oil consumption in China? A CGE-based analysis

Abstract

The increasing oil demand in China has brought negative issues, such as energy security risk, carbon emissions, and air pollution. Therefore, it is of considerable significance to rationally control total oil consumption and push it to peak as soon as possible to ensure national energy supply security and deal with climate change and environmental pollution. To this end, based on a computable general equilibrium (CGE) model, this study constructs a detailed carbon trading module to evaluate the socio-economic and environmental effects of the inclusion of different high oil-consuming industries in the emission trading system (ETS). Results show that, first, regarding total oil consumption control, when the ETS includes all high oil-consuming industries the total oil consumption and oil external dependence decrease most significantly. Second, in terms of environmental effects, the inclusion of the four high oil-consuming industries (i.e., Chemical, Non-Metal, Transportation, and Construction) has the best effect. It has the largest cumulative reduction of carbon emissions and the second-largest cumulative reduction of SO2 and NOX. Third, as for economic impact, the negative impact on GDP and the oil industry chain are the smallest when including the Chemical and Non-Metal industries in the ETS. Finally, this study conducted a series of sensitivity analyses, including key substitution elasticities and high international oil price, to verify the robustness of corresponding policy recommendations.