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The Regional Economic Effects of a Reduction in Carbon Emissions and An Evaluation of Offsetting Policies in China

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  • Anping Chen

    (School of Economics Jinan University)

  • Nicolaas Groenewold

    (Business School, University of Western Australia)

Abstract

China has promised to cut CO2 emissions per unit of GDP 40-50% by 2020. It is almost certain that the reduction in emissions will have negative effects on the economy; moreover, the effects are likely to differ across regions, given that there is considerable heterogeneity among Chinese regions. These differential regional impacts will affect regional disparities, which are already very substantial and the source of great concern at the highest policy levels. Yet, very little analysis of them has yet been carried out. We help fill this gap by building a small theoretical model involving two regions designed to capture some of the features of the Chinese economy. We incorporate the right to emit CO2 as a factor of production with the national level of permitted emissions set by the national government. The model is solved numerically based on a parameterisation using Chinese data to simulate the effects on the regions of the carbon-reduction. We find that a reduction has regionally differentiated effects on key variables such as income, welfare and output. We also explore the effects of offsetting policies that may be undertaken by governments at both regional and national levels to ameliorate the effects of the carbon reduction. We find that the effects of standard fiscal policies (both regional and national) depend crucially on whether one or both regions are targeted. Welfare changes are often in the opposite direction to output changes. Boosts to productive capacity do better in terms of output but also have “perverse” welfare effects.

Suggested Citation

  • Anping Chen & Nicolaas Groenewold, 2012. "The Regional Economic Effects of a Reduction in Carbon Emissions and An Evaluation of Offsetting Policies in China," Economics Discussion / Working Papers 12-14, The University of Western Australia, Department of Economics.
  • Handle: RePEc:uwa:wpaper:12-14
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    References listed on IDEAS

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    Cited by:

    1. Fan, Ying & Wu, Jie & Xia, Yan & Liu, Jing-Yu, 2016. "How will a nationwide carbon market affect regional economies and efficiency of CO2 emission reduction in China?," China Economic Review, Elsevier, vol. 38(C), pages 151-166.
    2. repec:taf:applec:v:49:y:2017:i:7:p:702-721 is not listed on IDEAS
    3. repec:gam:jeners:v:10:y:2017:i:8:p:1166-:d:107424 is not listed on IDEAS
    4. Chen, Anping & Groenewold, Nicolaas, 2015. "Emission reduction policy: A regional economic analysis for China," Economic Modelling, Elsevier, vol. 51(C), pages 136-152.
    5. Partridge, Mark D. & Yang, Benjian & Chen, Anping, 2017. "Do Border Effects Alter Regional Development: Evidence from China," MPRA Paper 82080, University Library of Munich, Germany.
    6. Anping Chen & Nicolaas Groenewold, 2017. "An increase in the retirement age in China: the regional economic effects," Applied Economics, Taylor & Francis Journals, vol. 49(7), pages 702-721, February.
    7. Chen, Anping & Dai, Tianshi & Partridge, Mark, 2017. "Agglomeration and Firm Wage Inequality: Evidence from China," MPRA Paper 83516, University Library of Munich, Germany.

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