Is it in China's interest to implement an export carbon tax?

Abstract

Considering the dual context of China's domestic willingness to have a cleaner export structure and the widespread concern among developed countries that carbon leakage from developing countries, particularly China, could threaten their own climate policy effectiveness; this paper uses the SICGE model to investigate the economic rationale of taxing direct CO2 emissions of export in China. With an export carbon tax set at 200 yuan/t CO2, three policy scenarios were studied, where the tax revenue is: undistributed; redistributed neutrally to stimulate investment; and redistributed neutrally to stimulate consumption. According to the model, the economic and climate effects of the different policy scenarios are not particularly distinguishable. The economic impacts are slightly negative while the effect on the export structure is significant: the export of major energy-intensive products decreased and the export of certain sectors (labour-intensive or with higher value-added) increased, resulting in a cut of 3.77% in total direct CO2 emissions from exports. The revenue redistribution to stimulate consumption is shown to be the optimal scenario choice, which was confirmed by further sensitivity tests. By reviewing related WTO laws, this paper concludes that a clearly designed export carbon tax with a comparable carbon price is in China's own interest, while lessening the carbon leakage concerns of developed countries.