The costs of a global climate agreement for China: A tale of carbon price, timing of emissions reduction and quota allocation

The recent Conferences of the Parties illustrate that a lot of uncertainties still remain about future international climate policy architecture. This paper considers the economic consequences of a binding global agreement on the Chinese economy. China is indeed a key player in climate negotiations as the first CO2 world emitter, very carbon-intensive and fast growth economy. We visit the question of the Chinese mitigation costs by considering different policy designs based on a uniform global carbon price that vary according to (i) the temporal profile of carbon emissions reductions and (ii) quota allocation schemes. To do so, we use the CGE model IMACLIM-R that represents the second best nature of economic interactions and the inertias that limit the flexibility of adjustments, a crucial dimension for emerging economies when envisaging large structural change over the course of the century. We find that combining delaying the efforts with an adequate quota allocation scheme can be benefic for China. However, mitigation costs remain important, which suggests the recourse to policies and measures in addition to carbon pricing to help smoothing the necessary shift to a low carbon society.