The Emission Reduction Effect and Economic Impact of an Energy Tax vs. a Carbon Tax in China: A Dynamic CGE Model Analysis

Discussion Papers

No.487

by Lele ZOU, Jinjun XUE, Alan FOX, Bo MENG , Tsubasa SHIBATA

January 2015

ABSTRACT

Chinese government commits to reach its peak carbon emissions before 2030, which requires China to implement new policies. Using a CGE model, this study conducts simulation studies on the functions of an energy tax and a carbon tax and analyzes their effects on macro-economic indices. The Chinese economy is affected at an acceptable level by the two taxes. GDP will lose less than 0.8% with a carbon tax of 100, 50, or 10 RMB/ton CO2 or 5% of the delivery price of an energy tax. Thus, the loss of real disposable personal income is smaller. Compared with implementing a single tax, a combined carbon and energy tax induces more emission reductions with relatively smaller economic costs. With these taxes, the domestic competitiveness of energy intensive industries is improved. Additionally, we found that the sooner such taxes are launched, the smaller the economic costs and the more significant the achieved emission reductions.

Keywords: Energy tax, Carbon tax, Climate change, CGE model, Energy intensive industry
JEL classification: C13, C15, C54, E37, J21, K32, O44, Q54

PDF (611KB)

Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.