Policy modeling on the GDP spillovers of carbon abatement policies between China and the United States

Abstract

This paper simulates the GDP spillover effects between China and U.S. caused by the implementation of different climate protection policies. It is based on a combination of several climate protection models, which are the State-contingent Model and the Demeter Model, and the GDP Spillovers Model, known as the Mundell–Fleming model. From the simulation results, it is concluded that whether the United States implements policies on increasing carbon sink or not makes very little difference on the total output in the U.S. and the GDP spillovers toward China. However, the spillover impact of American carbon abatement policies on China experiences a varying trend that rises from negative to positive. These simulation results show that the climate protection policies of one country will have positive impact on the GDP spillovers of another country in the long term. This paper is focused on two conditions while simulating the GDP for both China and the U.S. Condition A within the simulations ignores the impact of GDP spillovers of foreign countries, while condition B takes the impact of GDP spillovers of foreign countries into consideration. Furthermore, this paper presents the simulated GDP of China and the U.S. under different scenarios and analyzes the level of GDP spillovers between the two countries. This paper concludes that carbon abatement policies in the U.S. have a larger and more noticeable GDP spillover effects to China.