The economic impact of a deep decarbonisation pathway for China: a hybrid model analysis through bottom-up and top-down linking

Designing mid-century low-emission development strategies is crucial to guiding long-term mitigation pathways at national levels. The cost of low-carbon transition is one of the key concerns in deep decarbonisation pathways (DDPs). In this study, we estimate the macroeconomic cost of a deep decarbonisation pathway for China, by integrating an energysystems optimization model with an economic model through hard linking. Our results show that deep decarbonisation increases the energy expenses of households in the mid-run through, especially, the higher cost of power and its substitution to coal; but not those of firms, who benefit from lower coal prices caused by the reduction of coal demand and reduce costly oil products consumptions early on. Energy-efficiency improvements therefore lead to a decrease of firms' total energy costs, which allows partially compensating the crowding-out effect of low-carbon investment on general productive capital. Compared to business-as-usual, our DDP 2 scenario consequently comes at a small macroeconomic cost, equal to a lag of less than one year of growth in 2050.