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Impacts of Border Carbon Adjustments on China’s Sectoral Emissions: Simulations with a Dynamic Computable General Equilibrium Model

  • Qin Bao

    (Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences)

  • Ling Tang

    (Institute of Policy and Management, Chinese Academy of Sciences, Graduate University of Chinese Academy of Sciences)

  • ZhongXiang Zhang

    (Institute of Policy and Management, Chinese Academy of Sciences, Center for Energy Economics and Strategy Studies; and Research Institute for the Changing Global Environment, Fudan University, Research Program, East-West Center)

  • Han Qiao

    (College of Economics, Qingdao University, Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences)

  • Shouyang Wang

    (Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences)

Carbon-based border tax adjustments (BTAs) have recently been proposed by some OECD 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 US and EU on China’s sectoral carbon emissions. The results indicate that BTAs will cut down export prices and transmit the effects to the whole economy, reducing sectoral output-demands from both supply side and demand side. On the supply side, sectors might substitute away from exporting toward domestic market, 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 leads to energy substitution effect and somewhat stimulates 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 increasing, decreasing or moving in a different direction. These results suggest that an incentive mechanism to encourage the widespread use of environment-friendly fuels and technologies will be more effective.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2011.93.

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Date of creation: Dec 2011
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Handle: RePEc:fem:femwpa:2011.93
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