Impact of energy structure on carbon emission and economy of China in the scenario of carbon taxation

Abstract

As the largest CO2 emitter in the world, China intends to achieve the peak of carbon emissions in around 2030. Unlike many other countries' targets of reducing the amount the carbon emissions, China has engaged in achieving the goal of carbon emission intensity regulation including economic development and carbon emission reduction. In recent years, carbon tax policy has been implemented by about 30 national and sub-national jurisdictions in controlling carbon emissions and has shown promising results. In this context, this research evaluates whether the carbon tax is an effective way for China to accomplish the win-win target of carbon reduction and GDP growth. Specifically, a model is established based on the energy substitution theory and input-output theory to evaluate the effectiveness of carbon tax on the eight economic sectors of China. The carbon emission reduction and economic performance before and after carbon taxation are compared. Moreover, the effects of different carbon tax rates on economic development are analyzed. The results are as follows: (1) The total amount of carbon emission decreases while the carbon tax is levied, and a positive correlation is found between the tax rate and the emission reduction amount. (2) The carbon tax has a significant impact on economic development, and a negative correlation is found between the tax rate and economic development. However, the loss of the economic output caused by the carbon tax gradually reduces over time. (3) Carbon tax policy would be effective for China to accomplish the win-win goal of carbon reduction and GDP growth. Moreover, the carbon tax rate should be set at a low level to achieve the target by the lowest economic cost. On this basis, several policy recommendations are proposed by this research.