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Impacts of border carbon adjustments on China's sectoral emissions: Simulations with a dynamic computable general equilibrium model

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  • Bao, Qin
  • Tang, Ling
  • Zhang, ZhongXiang
  • Wang, Shouyang

Abstract

Carbon-based border tax adjustments (BTAs) have recently been proposed by some OECD (Organization for Economic Co-operation and Development) countries to level the carbon playing field and target major emerging economies. This paper applies a multi-sector dynamic, computable general equilibrium (CGE) model to estimate the impacts of the BTAs implemented by the US and EU on China's sectoral carbon emissions. The results indicate that BTAs will decrease export prices and transmit the effects to the whole economy, affecting sectoral output and demand from both the supply side and demand side. On the supply side, sectors might move away from exporting towards the domestic market, thereby increasing sectoral supply, while on the demand side, the domestic income may be strikingly cut down due to the decrease in export price, decreasing sectoral demand. Furthermore, such shrinkage of demand may similarly reduce energy prices, which would lead to an energy substitution effect and somewhat stimulate carbon emissions. Depending on the relative strength of the output–demand effect and energy substitution effect, sectoral carbon emissions and energy demands will vary across sectors, with increases, decreases or shifts in different directions. These results suggest that an incentive mechanism to encourage the widespread use of environment-friendly fuels and technologies will be more effective than BTAs.

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Bibliographic Info

Article provided by Elsevier in its journal China Economic Review.

Volume (Year): 24 (2013)
Issue (Month): C ()
Pages: 77-94

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Handle: RePEc:eee:chieco:v:24:y:2013:i:c:p:77-94

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Web page: http://www.elsevier.com/locate/chieco

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Keywords: Border carbon tax adjustments; Computable general equilibrium model; Carbon emissions;

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  1. Top Three Crawford Working Papers in March 2012
    by David Stern in Stochastic Trend on 2012-04-02 10:14:00
  2. Crawford School Working Papers in February 2012
    by David Stern in Stochastic Trend on 2012-03-02 10:26:00
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Cited by:
  1. Irfanoglu, Zeynep Burcu & Golub, Alla A. & Hertel, Thomas W. & Henderson, Benjamin B., 2012. "Effects of carbon-based border tax adjustments on carbon leakage and competitiveness in livestock sectors," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 125006, Agricultural and Applied Economics Association.
  2. Ling Tang & Qin Bao & ZhongXiang Zhang & Shouyang Wang, 2013. "Carbon-based Border Tax Adjustments and China’s International Trade: Analysis based on a Dynamic Computable General Equilibrium Model," Working Papers 2013.17, Fondazione Eni Enrico Mattei.
  3. Zhang, Da & Rausch, Sebastian & Karplus, Valerie J. & Zhang, Xiliang, 2013. "Quantifying regional economic impacts of CO2 intensity targets in China," Energy Economics, Elsevier, vol. 40(C), pages 687-701.

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