Evaluating policies to implement the Paris Agreement: a toolkit with application to China

This chapter describes a spreadsheet model for evaluating alternative fiscal and regulatory instruments policymakers might consider for implementing their Paris mitigation pledges. Policies are evaluated against various metrics, including impacts on carbon dioxide (CO2) emissions, revenue, deaths from local air pollution, economic welfare, and incidence across households and industries. The model is applied to China but could be transferred to most other countries. For China, in our central case a carbon tax or coal tax progressively rising to $35 per ton of CO2 cuts CO2 emissions by about 20 per cent and raises well over 1 per cent of GDP in revenue in 2030 while, cumulated over 2017–2030, saves approaching two million lives and generates discounted welfare gains equivalent to over 30 per cent of 2015 GDP. An equivalently scaled emissions trading system applied to large emissions sources has roughly half the environmental and fiscal effectiveness, while other policies (e.g., incentives for energy efficiency and renewables, taxes on electricity and road fuels) are substantially less effective. Using around 5 per cent of the revenue from carbon/coal taxes can compensate low income groups for increased energy prices, while 10 per cent of the revenues could compensate energy-intensive and trade-exposed firms.