Quantifying the dynamical interactions between carbon pricing and environmental protection tax in China

Abstract

China's environmental protection tax (EPT) has been in effect since the beginning of 2018 to combat the country's severe air pollution problems. Meanwhile, carbon tax (CTX) has been identified as the most effective way of climate change mitigation. The combined effects of these two policies, in conjunction to their dynamical interactions, however, have yet been thoroughly studied. Utilizing a multiple-province computable general equilibrium (CGE) model, we compare the effects of EPT and CTX policies solely and jointly in 2030. The results show that the EPT policy has limited impact on energy-related air pollution and CO2 reduction, while the CTX policy effectively targets CO2 emissions from energy combustion processes and provides significant co-benefits in reducing air pollutants. The integration of these two policies enhances emission reduction efficiency, with the CTX policy complementing the EPT policy. Implementing CTX alongside EPT leads to substantial emissions reductions, particularly in high-industrial provinces. However, there are economic implications, as certain provinces may experience GDP losses, emphasizing the importance of equitable burden distribution. Policymakers should carefully evaluate and adjust carbon tax rates to ensure both effectiveness and fairness in achieving environmental goals.