The effects of carbon taxation in China: An analysis based on energy input-output model in hybrid units

Abstract

This paper evaluates the economy-wide effects of carbon taxation in China. To this end, we build a price model based on an energy input-output table in hybrid units that ensures the consistency of the analysis. The results indicate that carbon taxation has small negative impact on GDP. There are, however, relatively substantial emissions reductions. To explore whether the impacts are spatially blind, in the sense of having similar impacts on urban and rural residents, the results of the distributional effects show that the impacts of carbon taxation on different urban household groups reveal small differences and are slightly regressive. Yet for rural residents, carbon taxation may be significantly regressive. In addition, rural residents are found to be affected much more than urban residents. Furthermore, the paper explores a policy intervention to investigate the effects of redistributing the carbon tax paid by households. The main results reveal that reallocating the carbon tax to the groups with low income levels can offset the negative distributional effects significantly. Moreover, the results of Miyazawa-style interrelational income multiplier analysis indicate that the household groups with high income would benefit significantly from the income increases in those with low income levels, but not vice versa.