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Carbon Policy in a High-Growth Economy: The case of China

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  • Lucas Bretschger
  • Lin Zhang

Abstract

There is widespread concern that an international agreement on stringent climate policies will not be reached because it would imply too high costs for fast growing economies like China. To quantify these costs we develop a general equilibrium model with fully endogenous growth. The framework includes disaggregated industrial and energy sectors, endogenous innovation, and sector-speci c investments. We find that the implementation of Chinese government carbon policies until 2020 causes a welfare reduction of 0.3 percent. For the long run up to 2050 we show that welfare costs of internationally coordinated emission reduction targets lie between 3 and 8 percent. Assuming faster energy technology development, stronger induced innovation, and rising energy prices in the reference case reduces welfare losses signi cantly. We argue that increased urbanization raises the costs of carbon policies due to altered consumption patterns.

Suggested Citation

  • Lucas Bretschger & Lin Zhang, 2014. "Carbon Policy in a High-Growth Economy: The case of China," OxCarre Working Papers 143, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    • Handle: RePEc:oxf:oxcrwp:143
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    2. Lucas Bretschger & Matthias Leuthard & Alena Miftakhova, 2024. "Boosting Sluggish Climate Policy: Endogenous Substitution, Learning, and Energy Efficiency Improvements," CER-ETH Economics working paper series 24/391, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    3. Charlier, Dorothée & Pommeret, Aude & Ricci, Francesco, 2024. "A rationale for the Right-to-Development climate policy stance?," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    4. Xu, Shang & Allen Klaiber, H., 2019. "The impact of new natural gas pipelines on emissions and fuel consumption in China," Resource and Energy Economics, Elsevier, vol. 55(C), pages 49-62.
    5. Korrakot Phomsoda & Nattapong Puttanapong & Mongkut Piantanakulchai, 2021. "Economic Impacts of Thailand’s Biofuel Subsidy Reallocation Using a Dynamic Computable General Equilibrium (CGE) Model," Energies, MDPI, vol. 14(8), pages 1-21, April.
    6. Dong, Xiaojun & Yu, Xiaowen & Shi, Tao & Qiao, Dan, 2024. "Nexus between carbon emissions and local debt risk: Evidence from China's prefecture-level cities," International Review of Financial Analysis, Elsevier, vol. 93(C).
    7. Adriana Marcucci & Lin Zhang, 2019. "Growth impacts of Swiss steering-based climate policies," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 155(1), pages 1-13, December.
    8. Jiang, Jingjing & Ye, Bin & Liu, Junguo, 2019. "Research on the peak of CO2 emissions in the developing world: Current progress and future prospect," Applied Energy, Elsevier, vol. 235(C), pages 186-203.
    9. Zhang, Yue-Jun & Liu, Zhao & Zhou, Si-Ming & Qin, Chang-Xiong & Zhang, Huan, 2018. "The impact of China's Central Rise Policy on carbon emissions at the stage of operation in road sector," Economic Modelling, Elsevier, vol. 71(C), pages 159-173.
    10. Korrakot Phomsoda & Nattapong Puttanapong & Mongkut Piantanakulchai, 2021. "Assessing Economic Impacts of Thailand’s Fiscal Reallocation between Biofuel Subsidy and Transportation Investment: Application of Recursive Dynamic General Equilibrium Model," Energies, MDPI, vol. 14(14), pages 1-32, July.
    11. Lucas Bretschger, 2018. "Greening Economy, Graying Society," CER-ETH Press, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich, edition 2, number 18-001.
    12. Zhang, Lin & An, Yao, 2017. "The government capacity on industrial pollution management in Shanxi province: A response impulse analysis," MPRA Paper 94796, University Library of Munich, Germany.
    13. Wei Zhen & Quande Qin & Lei Jiang, 2022. "Heterogeneous Domestic Intermediate Input-Related Carbon Emissions in China’s Exports," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 81(3), pages 453-479, March.
    14. Lin, Boqiang & Li, Zhensheng, 2021. "Does natural gas pricing reform establish an effective mechanism in China: A policy evaluation perspective," Applied Energy, Elsevier, vol. 282(PA).

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    More about this item

    Keywords

    Carbon policy; China; Endogenous growth; Induced innovation; Urbanization;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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