Recursive Dynamic Computable General Equilibrium Research Articles

Economic impacts of meeting China's NDC through carbon taxes with alternative schemes for recycling tax revenues

This study examines the impact of meeting China's Paris Climate Agreement commitment to reduce its emission intensity by 65 % below 2005 levels by 2030 through various policy instruments. We use a dynamic recursive computable general equilibrium model to simulate the economy-wide impacts of administrative mandates and carbon taxes using different revenue recycling schemes. China's GDP in 2030 would be approximately 1 % lower than the baseline if carbon emissions were constrained by mandates. The commitment's economic costs are lower than the carbon constraint case, regardless of revenue recycling. Economic costs are the lowest when carbon tax revenue is recycled to reduce taxes on capital or corporate income. Subsidizing solar and wind energy further reduces emissions, but at a higher economic cost with a GDP loss of about 0.53 %–0.58 % from the baseline. The results highlight the importance of proper design architecture to make carbon taxes more palatable to policymakers and taxpayers.

Adapting fiscal strategies to energy and food price shocks in Portugal

Economies that are dependent on imported inputs are vulnerable to external shocks affecting international prices. Although the effects of these shocks have been widely documented in the literature, strategies to effectively mitigate them remain underexplored. Using a recursive-dynamic computable general equilibrium (CGE) model, we examined the impact of global energy and food price shocks on the Portuguese economy. Moreover, we evaluated fiscal policies aimed at mitigating these impacts by boosting consumption through wage increases, cash transfers, consumption subsidies, and revitalizing economic activities with reduction in production tax. The findings suggest that reduction in production tax is the best mitigation option, as it directly improves sectoral competitiveness, promotes employment, and stimulates consumption. In contrast, a consumption-focused fiscal strategy is costlier and exclusively enhances household purchasing power. Notwithstanding, raising wages inadvertently worsens persistent inflation due to increased production costs and demand. Exploring various financing options is necessary to assess policy effectiveness and consistency over time.

Impact of renewable energy expansion policies on the economy, income distribution, and air pollution reduction

This study employs a recursive dynamic computable general equilibrium model to evaluate the consequences of renewable energy (RE) expansion policies in South Korea, focusing on their impact on the economy, income distribution, and air pollution reduction. It assumes a scenario in which RE generation constitutes 20% of the total electricity generation by 2030. Various scenarios are explored, including those with and without emission regulations and those considering increased productivity of RE technology. Key findings suggest that expanding RE policies stimulates labor demand and revitalizes upstream industries. However, its effectiveness depends on increasing the efficiency of RE technologies. Carbon regulation, such as emissions trading schemes, reduces greenhouse gases and air pollutants, with environmental benefits outweighing GDP reductions. It decreases income inequality, whereas policies to promote RE exacerbate it, requiring corrective measures. Nevertheless, productivity improvements in the RE sector enhance income distribution.

The impact of carbon tax policy on residents’ welfare of China and its heterogeneity under the carbon neutrality goal: A CGE model-based analysis

Under the background that China will achieve the goal of carbon neutrality by 2060, analyzing the impact of carbon neutral target constraints on the welfare of urban and rural residents is an important part of the design of a carbon emission reduction policy mechanism, in this paper, the dynamic recursive CGE(Computable general equilibrium) model is used to simulate the changes in welfare level, income consumption, and CO2 emissions of residents and their urban-rural heterogeneity under the policy of imposing a carbon tax on the fossil energy industry from 2022 to 2060. The results show that: compared with the BAU scenario, by 2060, first the income and consumption of residents will decrease slightly. Second, the target constraint of carbon neutrality makes the equivalent variation and compensate variation of urban and rural residents' welfare decrease slightly, and the equivalent variation and compensate variation of urban residents decrease more than those of rural residents. The following conclusions are drawn: first, the carbon-neutral target constraint makes the welfare of urban and rural residents decline slightly, but it will not have a strong impact on residents’ income and consumption. Second, this constraint has a greater impact on the income, consumption and savings of urban residents than those of rural residents.

Impact of introducing Chinese certified emission reduction scheme to the carbon market: Promoting renewable energy

The China Certified Emission Reduction scheme (CCER) and the Cap-and-Trade (CaT) mechanisms jointly constitute the Emission Trading Scheme (ETS), which is expected to have a profound impact on China's social and economic decarbonization. However, previous studies have primarily focused on the impact of the CaT mechanism, neglecting the fact that CCERs serve as a carbon offset trading mechanism. This paper focuses on the impact of the CCER mechanism on China's energy economy and environment by constructing a recursive dynamic computable general equilibrium model that couples CaT and CCER mechanisms. Introducing the CCER mechanism based on the CAT mechanism leads to increased output and reduced prices in renewable energy sectors, cascading positive effects across various energy-utilizing sectors to counter the decline in Gross Domestic Product (GDP) and residential welfare. The finding suggests that China's unique CCER mechanism is poised to play a more important role in promoting renewable energy to mitigate global warming, given its potential to transform the structure of energy production and consumption. Finally, targeted policy recommendations are proposed for implementing the CCER mechanism.

Impacts of emission trading scheme on technological progress: A case study in China

Despite its significant role in mitigating climate change, technology was usually exogenously treated in evaluating climate policy, particularly emission trading scheme (ETS); such treatment cannot comprehensively reveal how ETS affects technological progress. To narrow this research gap, we attempt to endogenize ETS-induced technological change in this paper. A dynamic recursive Computable General Equilibrium (CGE) model is employed to quantify ETS-induced progress of clean technology (PCT) and efficiency improvement. The Chinese nationwide ETS is taken as a case study. The CGE model results show that PCT negatively affects anthropogenic emissions, while efficiency improvement decreases GDP loss or abatement cost. Simultaneously considering both technological progress increases emission abatement but slightly decreases GDP in the long term. The most interesting finding is that PCT moderates the relationship between efficiency improvement and emission abatement. Hence, PCT is crucial in emission abatement and economic growth under climate policy.

Water–energy nexus: The coupling effects of water and energy policy applied in China based on a computable general equilibrium model

China has implemented a number of national and regional water and energy policies to achieve its goals of carbon emissions (CE) reduction, energy saving, and water conservation. Given its high energy and water resources interdependence, a framework is needed that can provide both a unified and systematic assessment of these. This study investigates the effects of coupling China's energy tax and water fee policies using a recursive dynamic computable general equilibrium model. Several possible scenarios are simulated. The simulation results show that the water fee promotes water conservation, but its effect is limited at China's current water fee level. The energy tax is shown to be more effective in improving water-saving efficiency. Under the maximum energy tax scenario (EH), total energy and industrial water demand fall by 10.45% and 3.82%, respectively, compared with 0.59% and 0.72%, respectively, under the maximum water fee scenario (W8). Furthermore, the energy tax is more conducive to China's energy conservation and CE reduction (CER) targets than the water fee, but raising both energy taxes and water fees can have a significant impact on energy conservation and CER. In the scenario going from a low energy tax (EL) to a high-energy tax (EH), the reduction in primary energy production increases from 8.36% to 19.16%, while CE also drop significantly, going from 5.59% to 16.71%; however, In the scenario going from the low water fee (W2) to the high-water fee (W8), the reduction in primary energy production only changes from 0.24% to 0.43%, and CO2 reduction from 0.35% to 0.61%. Meanwhile, the mixed water-energy scenario shows a spill over effect, with the CE and energy savings management goals requiring less GDP loss than water or energy policies implemented in isolation. Ultimately, the results show that even when combined, relying solely on existing water and energy tax policies will be insufficient to meet China's water-saving targets without other environmental policies. The key to overcoming energy and water constraints is to increase water and energy efficiency year after year. This will enable China to achieve its CER target and the 14th Five-Year Plan water savings target. Thus, the synergistic effect of water conservation and energy saving can be realised simultaneously when the CER and energy consumption structure improve, which is crucial for developing an effective environmental policy strategy.

The Impact of Carbon Emission Trading on Renewable Energy: A Comparative Analysis Based on the CGE Model

This study examines the effects of carbon emission trading on renewable energy consumption in China. The research applies the CEEEA2.0 model to simulate the economic, energy, and environmental impacts of carbon trading from 2018 to 2030. The CEEEA2.0 model is a recursive dynamic computable general equilibrium model that incorporates multiple households, sectors, and an energy and environment module. Four scenarios are considered: the Business as Usual (BaU) scenario, the Emission Trading Scheme (ETS)-benchmark scenario, and the ETS-strengthened and ETS-enhanced scenarios. The findings reveal that carbon emission trading positively influences electricity consumption, resulting in a higher preference for renewable energy due to reduced price disparities between renewable sources and fossil fuels. Consequently, electricity generation from renewable sources increases in all scenarios compared to the BaU scenario. However, the share of renewable energy is not substantially affected by carbon emission trading due to the complex interplay of factors, including substitution and income effects. The study further highlights that carbon trading significantly reduces coal usage and partially increases the overall proportion of renewable energy. These results underscore the significance of establishing ambitious carbon reduction targets and continual efforts to shift towards clean energy sources.

Evaluating the impacts of renewable energy promotion policies on sustainable development: A computable general equilibrium model approach

Previous research has examined the double-dividend effects of renewable energy expansion policies, but the impact of financing mechanisms used to support this expansion has been overlooked. To address this gap, our study analyzes the economy-wide impacts of renewable energy expansion policies in Korea, with a specific focus on financing mechanisms. We employ a recursive dynamic computable general equilibrium model that considers imperfections in labor markets, heterogeneous households, and various electricity generation technologies. Our analysis examines the effects of various financing options for renewable energy on economic growth, the labor market, and social welfare, both with and without emission regulations. Our results reveal a trade-off between efficiency and equality when it comes to financing renewable energy expansion. Specifically, we find that financing the expansion through a lump-sum tax is the most efficient option, resulting in the smallest reduction in GDP compared to the business-as-usual scenario. However, this option also has the greatest negative impact on income inequality, as it leads to an increase in skill premiums and capital prices, exacerbating income disparities between households. Our findings suggest that renewable energy expansion tends to be regressive, with low-income households bearing a relatively larger burden of the costs associated with the expansion. Policymakers need to consider a range of options for alleviating income inequality and labor market disparity, such as targeted subsidies or transfers, to ensure a fair and efficient transition to a sustainable energy system.

Transação de Créditos REDD em Mercados Internacionais de Carbono

While several economic studies have looked into the role of REDD in climate policy, the interlinks between climate policy, international trade and agricultural markets have been only marginally considered. This paper adds to that discussion by developing a policy simulation exercise in which REDD credits can be traded in an international carbon market using a recursive dynamic computable general equilibrium model. The model was extended to incorporate abatement cost curves of avoided deforestation from a partial equilibrium study, and to account for the corresponding induced effects on land and timber markets. We conclude that REDD may significantly reduce policy costs. A large number of REDD credits entering the carbon market would allow regions pertaining to the climate policy agreement to systematically emit above their targets. These results confirm that policy design may require limits to the use of REDD credits along with the creation of long-term incentives to promote a greener economy. Finally, when international competitiveness effects are taken into account, we show that the use of REDD as a means to foster developing countries’ participation in climate policy may not be sufficient.

Carbon tax accompanied by a revenue recycling increases Australia's GDP: A dynamic recursive CGE approach

This study employs the dynamic recursive Computable General Equilibrium (CGE) approach to model Australia's economy. This carbon tax policy is designed based on Australia's economy, starting at A$23/tCO2, increasing over time and imposing uniformly on all industries. This study proposes two carbon tax policies and three revenue recycling approaches, and the prices and GDP variations are estimated during 2020 and 2035. This study confirms introducing a carbon tax policy decreases Australia's carbon emissions and reduces real consumption and GDP if it is not accompanied by a revenue recycling policy.But following a revenue-neutral policy and redirecting the carbon tax revenue into the economy through reducing income taxes and investing in research and development (R&D) projects leads to economic growth. This study confirms the implementation of a carbon tax associated with a suitable revenue recycling approach benefits Australia both economically and environmentally.

Impacts of agricultural capital subsidies for women in Burkina Faso: Lessons from a Computable General Equilibrium model

AbstractSub‐Saharan African countries have a strong involvement of women in the agricultural sector. However, women have limited access to productive resources. A better endowment of productive resources for women is seen as a crucial option for achieving noteworthy results in terms of agricultural production, income, and economic growth and for reducing income inequalities between men and women. This study aims to analyse the potential impacts of a subsidy policy on women's agricultural capital in Burkina Faso. It makes use of a recursive dynamic computable general equilibrium model and a gendered social accounting matrix. The results indicate that the subsidy policy contributes to increasing women's income more than men's income, helping to reduce income inequality between men and women. Moreover, unemployment for women decreases significantly. Finally, the policy is conducive to economic growth regardless of the funding source.

Primary fossil energy cost and price regulation in energy processing sectors---the perspective of price regulation market with Chinese characteristics

All enterprises in the field of energy processing in China are state-owned enterprises (SOEs), and the government regulates the prices of their products. China's SOEs have multiple objectives, so the market is not mimic a simple oligopoly market. Energy processing sectors are the links between primary fossil energy and the economy. We apply a dynamic recursive computable general equilibrium model with multi-sectors and multi-households, named CEEEA/CGE model, to simulate and analyze the impact of primary fossil energy cost changes and what will happen if prices are regulated in these energy processing sectors. These results underscore the role of price regulation in energy processing sectors: the regulation seems to stabilize the economy. It will reduce the impact of rising and falling energy costs, whether the impact is good or bad. Other findings are: 1) “resource curse” is spotted when the primary energy cost is reduced dramatically. 2) CPI only increases by a little, even if the primary energy costs increase significantly. 3) The economic impact of the changes in fossil energy costs is asymmetric.

Impacts of the population ageing on the effects of the nationwide emission trading scheme in China

Nowadays, population ageing is a common social phenomenon that occurs worldwide. Rapid ageing may have profound socioeconomic impacts, and thus it may influence effects of climate policy. Nevertheless, very few previous researchers have evaluated climate policy in an ageing society. In this paper, we attempt to narrow the research gap by incorporating ageing impact in climate policy evaluation. Specifically, we have modeled ageing impacts on labor supply, household electricity consumption, and health expenditure. The core of the research framework in this paper is a dynamic recursive Computable General Equilibrium (CGE) model. The model results show that population ageing tends to decrease private health expenditure but increase governmental health expenditure. In contrast, Emission Trading Scheme (ETS) decreases both private and governmental health expenditure. Both population ageing and ETS decrease labor employment, employment rate, GDP, and carbon emissions. The results imply that population ageing lays heavy burdens on social healthcare system, whilst climate policy reduces governmental health expenditure. In ageing societies, mitigation targets can be achieved less costly and more easily through implementing ETS.

Import Tariff Reduction and Fiscal Sustainability: A Macro-Econometric Modelling for Ethiopia

The main objective of this study is to examine the dynamic impact of import tariff reduction on major macroeconomic variables and its long-run implications for the fiscal sustainability of Ethiopia. In addition, it estimates the increase in the average consumption tax required to compensate for the possible tax revenue loss and fiscal sustainability. A Recursive Dynamic Computable General Equilibrium Model (RDCGEM) is used to assess the dynamic impact on macroeconomic variables of import tariff reduction and examine the increased consumption tax required. The study is novel as there are no studies in general, and for Ethiopia in particular in this regard. We use the available 2013/2014 base year macroeconomic data from national income accounts, fiscal accounts, and balance of payments accounts of Ethiopia. The RDCGEM is calibrated to the base year data, checked for correctness, and tested for robustness using sensitivity analysis. The model then is simulated for the import tariff reduction under the base case and under various tariff reduction scenarios based on which the macroeconomic impacts of tariff reduction are analyzed. Based on the RDCGM outputs, the fiscal sustainability impact of import tariff reduction is verified, and using a cointegration method, we examine the sustainability of fiscal policy. The results suggest a 95 percent import tariff reduction that negatively impacts the major macroeconomic variables. It also leads to long-term fiscal unsustainability. The joint reform of the country has relatively better impacts on major macroeconomic variables but slightly negative effects on household income and consumption.

Declining Renewable Costs, Emissions Trading, and Economic Growth: China’s Power System at the Crossroads

As China reaffirms its commitments to limit the climate change risk and improve air quality, a combination of new policy and technology opportunities is presenting itself. A national emission trading scheme (ETS) begun in 2017 and is showing great promise, creating decentralized incentives for cost effective pollution mitigation. At the same time, sustained energy sector innovation is driving the costs of renewable electric power generation below those of fossil fuel substitutes. Early economic evidence of ETS measured pollution reductions, but has not addressed important economy-wide net benefits. This paper focuses on technology and energy cost savings and is the first to account for three multiplier effects—shifting consumption patterns, job growth, and the benefits of induced productivity growth—that would result from accelerated renewable electricity deployment in China. Results from a dynamic recursive computable general equilibrium model for 2017 to 2030 show that expanding renewable deployment can interact with the ETS to slash GHG emissions, as well as energy costs, stimulating significant long-term economic growth. These results suggest that China should accelerate its clean energy transition, not only for the air-quality and climate benefits, but to fulfill the energy sector’s potential to promote innovation, employment, and economic growth.

Designing the nationwide emission trading scheme in China

<abstract> <p>Emission trading scheme (ETS) is popular to abate anthropogenic emissions throughout the world. Previous researchers focused on evaluating ETS policy effect, but ETS design is usually neglected because ETS is already mostly sophisticated worldwide. This is not the case in China, as the Chinese nationwide ETS (CNETS) came into effect in July 2021. Implemented for a brief period, the CNETS lacks implementation details and thus may not achieve mitigation targets cost-effectively. In this paper, we attempt to narrow the research gap by comprehensively designing the CNETS. Our research framework is based on a dynamic recursive computable general equilibrium (CGE) model. The CGE model results show that the appropriate CNETS should include the coverage of the electricity generation and manufacturing sectors, higher carbon price (175 ${CNY} / {t} {CO}_2$), quota allocation based on the carbon intensity in the previous year, higher quota decline factor (2%) and time-decreasing free quota ratio. Although we have only designed the Chinese ETS in this paper, the research framework may become a paradigm of designing appropriate ETS.</p> </abstract>

The Housing Financing Policy and Its Impacts on Low-Income Communities and Indonesian Economy

The housing financing policy or the Liquidity Facility of Housing Financing (FLPP) aims to help low-income communities (MBR) access affordable and livable housing. Unfortunately, MBR's housing backlog is still high, affecting their productivity. The housing financing policy also leverages the changes in other sectors' activities, which can increase or contract economic performance. This study aims to analyze the impact of housing financing policies on MBR's welfare and the Indonesian economy's performance. The Recursive-Dynamic Computable General Equilibrium (RDCGE) and the Econometric Model capture economic resources reallocation at MBR and macroeconomic levels due to housing financing policies. The study results indicate that the FLPP can potentially increase the growth and development of housing and improve community welfare. In addition, the FLPP positively impacts economic performance, although it will make specific sectors worse off. The policy recommendations are related to the simultaneous improvement of the demand and supply sides, as well as improvement in housing budget

Inequality impacts of ETS penalties: A case study on the recent Chinese nationwide ETS market

Climate change induces inequality, and climate policies to cope with climate change may unexpectedly further increase inequality. Within the domains of climate policies, punishment mechanisms are vital to ensure policy effects; nevertheless, very few studies have focused on inequality impacts of punishment mechanisms. In this paper, we attempt to narrow the research gap by using a dynamic recursive Computable General Equilibrium (CGE) model to analyze how the designed ETS penalties affect inequality in China. The CGE model results show that ETS penalties induce uneven distribution of mitigation costs, output loss, and emission abatement among the sectors. ETS penalties slightly decrease household income and consumption inequality, denoted by the Gini coefficients; however, people's negative feelings about inequality are positively related to ETS penalties. The results imply that the current Chinese nationwide ETS market is not stringent enough to effectively achieve mitigation targets. In such a loose ETS policy, ETS penalties cannot give full play to regulate emission non-compliance and thus have minimal impacts on inequality. Hence, worldwide policymakers should not design too loose ETS policies to avoid undermining ETS punishment mechanisms.

Health benefits from the reduction of PM2.5 concentrations under carbon tax and emission trading scheme: a case study in China.

Climate policies could improve air quality, thereby generating health benefits and thus increasing labour input for economic growth. Nevertheless, health benefits are usually overlooked in evaluation frameworks of climate policies. In this paper, a dynamic recursive computable general equilibrium (CGE) model is adopted to define how climate policies are related to air pollution, namely [Formula: see text] concentrations. Health benefits of climate policies are divided into reduction of [Formula: see text]-related morbidity and mortality. The CGE model results show that both carbon tax and emission trading scheme (ETS) decrease morbidity and mortality; therefore, under climate policies, [Formula: see text]-related labour loss decreases, and thus increasing labour input triggers an economic boom. Carbon tax generates more health benefits in short term, while health benefits of ETS policy will gradually increase in long term. Hence, we conclude that regarding health benefits, a long-term ETS policy is preferable to a long-term carbon tax. This finding implies that the recently established nationwide ETS market in China is meaningful, as it will generate more health benefits in future. Nevertheless, the quantified health benefits in this paper still cannot compensate GDP loss induced by climate policy implementations, implying that it is a challenging task to unbiasedly model health benefits of climate policies. Hence, we have recommended that the scopes and contents of health benefits should be expanded in evaluations of climate policies.