Carbon Tax for Achieving China's NDC: Simulations of Some Design Features Using a CGE Model

Citation:

Govinda R. Timilsina, Jing Cao, and Mun S. Ho. 2018. “Carbon Tax for Achieving China's NDC: Simulations of Some Design Features Using a CGE Model.” Climate Change Economics, 9, 3. Publisher's Version

Abstract:

China has set a goal of reducing its CO2 intensity of GDP by 60–65% from the 2005 level in 2030 as its nationally determined contribution (NDC) under the Paris Climate Change Agreement. While the government is considering series of market and nonmarket measures to achieve its target, this study assesses the economic consequences if the target were to meet through a market mechanism, carbon tax. We used a dynamic computable general equilibrium model of China for the analysis. The study shows that the level of carbon tax to achieve the NDC target would be different depending on its design features. An increasing carbon tax that starts at a small rate in 2015 and rises to a level to meet the NDC target in 2030 would cause smaller GDP loss than the carbon tax with a constant rate would do. The GDP loss due to the carbon tax would be smaller when the tax revenue is utilized to cut existing distortionary taxes than when it is transferred to households as a lump-sum rebate.
Last updated on 11/14/2018