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Dynamic interactive effect and co-design of SO2 emission tax and CO2 emission trading scheme

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  • Xiao, Bowen
  • Fan, Ying
  • Guo, Xiaodan

Abstract

To solve the different environmental problems caused by the over-use of fossil fuels, multiple environmental policies currently coexist. How these environmental policies interact with each other and how to optimise them are a few issues that need to be resolved urgently in practice. We established an environmental dynamic stochastic general equilibrium model (E-DSGE) to analyse the dynamic interactive effects of the SO2 emission tax and CO2 emission trading in China and the optimal design of these two environmental policies. We have calibrated the model based on China's actual data. The results indicate that synergistic emission reduction effects have led to an overlap between the two policies, because both SO2 and CO2 emissions share a common root—fossil fuels. Currently there is no obvious conflict between them. When the SO2 emission tax is levied at 12.6 CNY/kg, the CO2 emission cap should be lower than 76.1%. Second, the synergistic emission reduction effect between CO2 emission trading and the SO2 emission tax can enhance the automatic stabilisation function of both. Third, we suggest to optimise both policies pro-cyclically. However, if either of these two policies is ineffective, the optimal SO2 emission tax will be counter-rather than pro-cyclical.

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  • Xiao, Bowen & Fan, Ying & Guo, Xiaodan, 2021. "Dynamic interactive effect and co-design of SO2 emission tax and CO2 emission trading scheme," Energy Policy, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:enepol:v:152:y:2021:i:c:s0301421521000811
    DOI: 10.1016/j.enpol.2021.112212
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