IDEAS home Printed from https://ideas.repec.org/a/eee/streco/v74y2025icp630-644.html

Analyzing the environmental and economic impact of carbon pricing policy based on an improved dynamic CGE model: Incorporating demographic characteristics of resident

Author

Listed:
  • Li, Xiaoyu
  • Yao, Ye
  • Chen, Zhenni
  • Du, Huibin

Abstract

Narrowing income inequality while ensuring emission reduction efficiency is essential for achieving social equity and enhancing feasibility of carbon reduction policies. Using China's carbon pricing policy as a case study, this paper evaluates the environmental and economic impacts of various carbon pricing strategies under different carbon market coverage scopes and revenue recycling schemes. To conduct this analysis, we employ an improved dynamic Computable General Equilibrium (CGE) model that classifies residents based on five distinct categories, i.e. gender, age, education level, registration status, and income level. The findings reveal that while carbon pricing reduces emissions, it negatively impacts social welfare and energy-intensive industries. Moreover, it exacerbates income inequality across different age groups, education levels, and registration status, despite contributing to a reduction in gender income inequality. From an efficiency perspective, prioritizing the inclusion of the building materials industry in the carbon market maximizes emission reduction effectiveness. In contrast, to mitigate income inequality, the petrochemical industry should be the first to be integrated into the carbon market. Additionally, the study finds that expanding industry coverage within the carbon market enhances overall emission reduction efficiency. Under the optimal efficiency scenario, redistributing carbon revenue to rural, low-income female residents aged 20–59 with junior high or associate degrees proves to be the most effective strategy for reducing income inequality.

Suggested Citation

  • Li, Xiaoyu & Yao, Ye & Chen, Zhenni & Du, Huibin, 2025. "Analyzing the environmental and economic impact of carbon pricing policy based on an improved dynamic CGE model: Incorporating demographic characteristics of resident," Structural Change and Economic Dynamics, Elsevier, vol. 74(C), pages 630-644.
    • Handle: RePEc:eee:streco:v:74:y:2025:i:c:p:630-644
    DOI: 10.1016/j.strueco.2025.05.021
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0954349X2500092X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.strueco.2025.05.021?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Shuyang Chen, 2022. "The inequality impacts of the carbon tax in China," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 9(1), pages 1-10, December.
    2. Mark Budolfson & Francis Dennig & Frank Errickson & Simon Feindt & Maddalena Ferranna & Marc Fleurbaey & David Klenert & Ulrike Kornek & Kevin Kuruc & Aurélie Méjean & Wei Peng & Noah Scovronick & Dea, 2021. "Climate action with revenue recycling has benefits for poverty, inequality and well-being," Nature Climate Change, Nature, vol. 11(12), pages 1111-1116, December.
    3. Mark Budolfson & Francis Dennig & Frank Errickson & Simon Feindt & Maddalena Ferranna & Marc Fleurbaey & David Klenert & Ulrike Kornek & Kevin Kuruc & Aurélie Méjean & Wei Peng & Noah Scovronick & Dea, 2021. "Protecting the poor with a carbon tax and equal per capita dividend," Nature Climate Change, Nature, vol. 11(12), pages 1025-1026, December.
    4. Ojha, Vijay P. & Pohit, Sanjib & Ghosh, Joydeep, 2020. "Recycling carbon tax for inclusive green growth: A CGE analysis of India," Energy Policy, Elsevier, vol. 144(C).
    5. Mark Budolfson & Francis Dennig & Frank Errickson & Simon Feindt & Maddalena Ferranna & Marc Fleurbaey & David Klenert & Ulrike Kornek & Kevin Kuruc & Aurélie Méjean & Wei Peng & Noah Scovronick & Dea, 2021. "Climate action with revenue recycling has benefits for poverty, inequality and well-being," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-03462773, HAL.
    6. Jia, Zhijie & Lin, Boqiang, 2020. "Rethinking the choice of carbon tax and carbon trading in China," Technological Forecasting and Social Change, Elsevier, vol. 159(C).
    7. Adrien Vogt-Schilb & Brian Walsh & Kuishuang Feng & Laura Di Capua & Yu Liu & Daniela Zuluaga & Marcos Robles & Klaus Hubaceck, 2019. "Cash transfers for pro-poor carbon taxes in Latin America and the Caribbean," Nature Sustainability, Nature, vol. 2(10), pages 941-948, October.
    8. Zhifu Mi & Jiali Zheng & Jing Meng & Jiamin Ou & Klaus Hubacek & Zhu Liu & D’Maris Coffman & Nicholas Stern & Sai Liang & Yi-Ming Wei, 2020. "Economic development and converging household carbon footprints in China," Nature Sustainability, Nature, vol. 3(7), pages 529-537, July.
    9. Berry, Audrey, 2019. "The distributional effects of a carbon tax and its impact on fuel poverty: A microsimulation study in the French context," Energy Policy, Elsevier, vol. 124(C), pages 81-94.
    10. Zhang, Qishi & Li, Bo & Liu, Jing-Yu & Deng, Yizhi & Zhang, Runsen & Wu, Wenchao & Geng, Yong, 2024. "Assessing the distributional impacts of ambitious carbon pricing in China's agricultural sector," Ecological Economics, Elsevier, vol. 217(C).
    11. Philip Ball, 2023. "Why women earn less than men: Nobel for economic historian who probed pay gap," Nature, Nature, vol. 622(7983), pages 444-444, October.
    12. Li, Yangfan & Zhang, Xiaoyun, 2023. "Recycling scheme of carbon pricing for inclusive decarbonization and energy transition: A recursive computable general equilibrium analysis in China," Renewable Energy, Elsevier, vol. 217(C).
    13. Huimin Bi & Hao Xiao & Kejuan Sun, 2019. "The Impact of Carbon Market and Carbon Tax on Green Growth Pathway in China: A Dynamic CGE Model Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(6), pages 1312-1325, May.
    14. Ren, Lei & Zhou, Sheng & Peng, Tianduo & Ou, Xunmin, 2021. "A review of CO2 emissions reduction technologies and low-carbon development in the iron and steel industry focusing on China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    15. Nick Macaluso & Sugandha Tuladhar & Jared Woollacott & James R. Mcfarland & Jared Creason & Jefferson Cole, 2018. "The Impact Of Carbon Taxation And Revenue Recycling On U.S. Industries," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 1-41, February.
    16. Jia, Zhijie & Lin, Boqiang, 2022. "CEEEA2.0 model: A dynamic CGE model for energy-environment-economy analysis with available data and code," Energy Economics, Elsevier, vol. 112(C).
    17. Nishiura, Osamu & Krey, Volker & Fricko, Oliver & van Ruijven, Bas & Fujimori, Shinichiro, 2024. "Integration of energy system and computable general equilibrium models: An approach complementing energy and economic representations for mitigation analysis," Energy, Elsevier, vol. 296(C).
    18. Jan C. Steckel & Ira I. Dorband & Lorenzo Montrone & Hauke Ward & Leonard Missbach & Fabian Hafner & Michael Jakob & Sebastian Renner, 2021. "Distributional impacts of carbon pricing in developing Asia," Nature Sustainability, Nature, vol. 4(11), pages 1005-1014, November.
    19. Lingli Qi & Lei Zhao & Yongqiang Zhang & Shiqi Jiang & Xinyue Lin & Yishuai Ren, 2024. "Correction: Computable general equilibrium analysis of neutral carbon trading scheme and revenue recycling impacts on income distribution in China," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 11(1), pages 1-1, December.
    20. Vogt-Schilb, Adrien & Walsh, Brian & Feng, Kuishuang & Di Capua, Laura & Liu, Yu & Zuluaga, Daniela & Robles, Marcos & Hubacek, Klaus, 2019. "Cash Transfers for Pro-poor Carbon Taxes in Latin America and the Caribbean," IDB Publications (Working Papers) 9883, Inter-American Development Bank.
    21. Mark Budolfson & Francis Dennig & Frank Errickson & Simon Feindt & Maddalena Ferranna & Marc Fleurbaey & David Klenert & Ulrike Kornek & Kevin Kuruc & Aurélie Méjean & Wei Peng & Noah Scovronick & Dea, 2021. "Climate action with revenue recycling has benefits for poverty, inequality and well-being," Post-Print halshs-03462773, HAL.
    22. Dong, Huijuan & Dai, Hancheng & Geng, Yong & Fujita, Tsuyoshi & Liu, Zhe & Xie, Yang & Wu, Rui & Fujii, Minoru & Masui, Toshihiko & Tang, Liang, 2017. "Exploring impact of carbon tax on China’s CO2 reductions and provincial disparities," Renewable and Sustainable Energy Reviews, Elsevier, vol. 77(C), pages 596-603.
    23. Chen, Shuyang & Wang, Can, 2023. "Inequality impacts of ETS penalties: A case study on the recent Chinese nationwide ETS market," Energy Policy, Elsevier, vol. 173(C).
    24. Cao, Jing & Ho, Mun S. & Jorgenson, Dale W. & Nielsen, Chris P., 2019. "China's emissions trading system and an ETS-carbon tax hybrid," Energy Economics, Elsevier, vol. 81(C), pages 741-753.
    25. Arthur A. Benthem & Edmund Crooks & Stefano Giglio & Eugenie Schwob & Johannes Stroebel, 2022. "The effect of climate risks on the interactions between financial markets and energy companies," Nature Energy, Nature, vol. 7(8), pages 690-697, August.
    26. Wei Li & Zhijie Jia, 2017. "Carbon tax, emission trading, or the mixed policy: which is the most effective strategy for climate change mitigation in China?," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 22(6), pages 973-992, August.
    27. Lin, Boqiang & Jia, Zhijie, 2017. "The impact of Emission Trading Scheme (ETS) and the choice of coverage industry in ETS: A case study in China," Applied Energy, Elsevier, vol. 205(C), pages 1512-1527.
    28. Nils Ohlendorf & Michael Jakob & Jan Christoph Minx & Carsten Schröder & Jan Christoph Steckel, 2021. "Distributional Impacts of Carbon Pricing: A Meta-Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(1), pages 1-42, January.
    29. Peter Kjær Kruse-Andersen & Peter Birch Sørensen, 2024. "Optimal carbon taxation in EU frontrunner countries: coordinating with the EU ETS and addressing leakage," Climate Policy, Taylor & Francis Journals, vol. 24(1), pages 26-38, January.
    30. Lingli Qi & Lei Zhao & Yongqiang Zhang & Shiqi Jiang & Xinyue Lin & Yishuai Ren, 2024. "Computable general equilibrium analysis of neutral carbon trading scheme and revenue recycling impacts on income distribution in China," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 11(1), pages 1-12, December.
    31. Mark Budolfson & Francis Dennig & Frank Errickson & Simon Feindt & Maddalena Ferranna & Marc Fleurbaey & David Klenert & Ulrike Kornek & Kevin Kuruc & Aurélie Méjean & Wei Peng & Noah Scovronick & Dea, 2021. "Climate action with revenue recycling has benefits for poverty, inequality and well-being," PSE-Ecole d'économie de Paris (Postprint) halshs-03462773, HAL.
    32. Song, Yazhi & Liu, Tiansen & Li, Yin & Zhu, Yue & Ye, Bin, 2022. "Paths and policy adjustments for improving carbon-market liquidity in China," Energy Economics, Elsevier, vol. 115(C).
    33. Li, Xiaoyu & Yao, Xilong, 2020. "Can energy supply-side and demand-side policies for energy saving and emission reduction be synergistic?--- A simulated study on China's coal capacity cut and carbon tax," Energy Policy, Elsevier, vol. 138(C).
    34. Jia, Zhijie & Wen, Shiyan & Liu, Yu, 2022. "China's urban-rural inequality caused by carbon neutrality: A perspective from carbon footprint and decomposed social welfare," Energy Economics, Elsevier, vol. 113(C).
    35. Jie, Dingfei & Xu, Xiangyang & Guo, Fei, 2021. "The future of coal supply in China based on non-fossil energy development and carbon price strategies," Energy, Elsevier, vol. 220(C).
    36. Jan Christoph Steckel & Sebastian Renner & Leonard Missbach, 2021. "Distributional Impacts of Carbon Pricing in Low- and Middle-Income Countries," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 22(05), pages 26-32, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhang, Qishi & Li, Bo & Liu, Jing-Yu & Deng, Yizhi & Zhang, Runsen & Wu, Wenchao & Geng, Yong, 2024. "Assessing the distributional impacts of ambitious carbon pricing in China's agricultural sector," Ecological Economics, Elsevier, vol. 217(C).
    2. Li, Yangfan & Zhang, Xiaoyun, 2023. "Recycling scheme of carbon pricing for inclusive decarbonization and energy transition: A recursive computable general equilibrium analysis in China," Renewable Energy, Elsevier, vol. 217(C).
    3. Li, Xiaoyu & Chen, Zhenni & Yao, Ye & Zeng, Zhao & Du, Huibin, 2025. "How does the low-carbon development of urban agglomeration narrow income inequality in China? A perspective of carbon pricing with revenue recycling schemes," Energy, Elsevier, vol. 317(C).
    4. Missbach, Leonard & Steckel, Jan Christoph & Vogt-Schilb, Adrien, 2024. "Cash transfers in the context of carbon pricing reforms in Latin America and the Caribbean," World Development, Elsevier, vol. 173(C).
    5. Malerba, Daniele & Roscioli, Federico & Gaentzsch, Anja & Ward, Hauke, 2024. "Changing carbon footprints and the consequent impacts of carbon taxes and cash transfers on poverty and inequality across years: A Peruvian case study," Energy Policy, Elsevier, vol. 192(C).
    6. Missbach, Leonard & Steckel, Jan Christoph & Ward, Hauke, 2023. "Assessing distributional effects of carbon pricing in Israel," Energy Policy, Elsevier, vol. 180(C).
    7. Chai, Shanglei & Huo, Wenjing & Li, Qiang & Ji, Qiang & Shi, Xunpeng, 2025. "Effects of carbon tax on energy transition, emissions and economy amid technological progress," Applied Energy, Elsevier, vol. 377(PC).
    8. Leonard Missbach & Jan Christoph Steckel, 2025. "Compensation Design for Carbon Pricing with Horizontal Heterogeneity: Evidence from 88 Countries," CESifo Working Paper Series 12258, CESifo.
    9. Linden, Jules & O’Donoghue, Cathal & Sologon, Denisa M., 2024. "The many faces of carbon tax regressivity—Why carbon taxes are not always regressive for the same reason," Energy Policy, Elsevier, vol. 192(C).
    10. Mireille Chiroleu-Assouline, 2022. "Rendre acceptable la nécessaire taxation du carbone. Quelles pistes pour la France ?," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 15-53.
    11. Combet, Emmanuel & Le Treut, Gaëlle & Méjean, Aurélie & Teixeira, Antoine, 2025. "The equity and efficiency trade-off of carbon tax revenue recycling: A re-examination," Energy Economics, Elsevier, vol. 148(C).
    12. Shuyang Chen, 2022. "The inequality impacts of the carbon tax in China," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 9(1), pages 1-10, December.
    13. Wu, Libo & Zhang, Shuaishuai & Qian, Haoqi, 2022. "Distributional effects of China's National Emissions Trading Scheme with an emphasis on sectoral coverage and revenue recycling," Energy Economics, Elsevier, vol. 105(C).
    14. Cathal ODonoghue & Beenish Amjad & Jules Linden & Nora Lustig & Denisa Sologon & Yang Wang, 2023. "The Distributional Impact of Inflation in Pakistan: A Case Study of a New Price Focused Microsimulation Framework, PRICES," Papers 2310.00231, arXiv.org, revised Mar 2024.
    15. Mardones, Cristian, 2024. "Improving the estimation of the distributional impacts of carbon pricing and targeted transfers to reduce its regressivity in Latin American countries," Ecological Economics, Elsevier, vol. 225(C).
    16. Brzezinski, Michal & Kaczan, Monika, 2025. "Carbon taxes in Europe do not hurt the poor: Evidence from existing taxation schemes," Ecological Economics, Elsevier, vol. 233(C).
    17. Muth, Daniel, 2023. "Pathways to stringent carbon pricing: Configurations of political economy conditions and revenue recycling strategies. A comparison of thirty national level policies," Ecological Economics, Elsevier, vol. 214(C).
    18. Jules Linden & Cathal O’Donoghue & Denisa M. Sologon, 2023. "Decomposing the distributional impact of carbon taxation across six EU countries - Comparing the role of budget shares, carbon intensity, savings rates, and asset ownership," LISER Working Paper Series 2023-10, Luxembourg Institute of Socio-Economic Research (LISER).
    19. de Bruin, Kelly & Yakut, Aykut Mert, 2024. "Efficiency–equity trade-off in the Irish carbon tax: A CGE investigation of mixed revenue recycling schemes," Economic Modelling, Elsevier, vol. 134(C).
    20. Yakut, Aykut Mert & de Bruin, Kelly, 2023. "The importance of having a more realistic welfare transfer determination rule: A CGE analysis for Ireland," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1310-1325.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:streco:v:74:y:2025:i:c:p:630-644. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/525148 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.