IDEAS home Printed from https://ideas.repec.org/p/uwa/wpaper/12-14.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.business.uwa.edu.au/__data/assets/pdf_file/0007/2157973/12-14-The-Regional-Economic-Effects-of-a-Reduction-in-Carbon-Emissions-and-an-Evaluation-of-Offsetting-Policies-in-China.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lin, Justin Y & Wang, Gewei & Zhao, Yaohui, 2004. "Regional Inequality and Labor Transfers in China," Economic Development and Cultural Change, University of Chicago Press, vol. 52(3), pages 587-603, April.
    2. Fleisher, Belton & Li, Haizheng & Zhao, Min Qiang, 2010. "Human capital, economic growth, and regional inequality in China," Journal of Development Economics, Elsevier, vol. 92(2), pages 215-231, July.
    3. John Whalley & Shunming Zhang, 2011. "A Numerical Simulation Analysis Of (Hukou) Labour Mobility Restrictions In China," World Scientific Book Chapters,in: China's Integration Into The World Economy, chapter 11, pages 295-324 World Scientific Publishing Co. Pte. Ltd..
    4. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-937, July.
    5. Nicolaas Groenewold & Alfred J. Hagger & John R. Madden, 2001. "Competitive Federalism: A Political-Economy General Equilibrium Approach," Economics Discussion / Working Papers 01-10, The University of Western Australia, Department of Economics.
    6. Woodland, Alan D. & Yoshida, Chisato, 2006. "Risk preference, immigration policy and illegal immigration," Journal of Development Economics, Elsevier, vol. 81(2), pages 500-513, December.
    7. Manne, Alan & Mendelsohn, Robert & Richels, Richard, 1995. "MERGE : A model for evaluating regional and global effects of GHG reduction policies," Energy Policy, Elsevier, vol. 23(1), pages 17-34, January.
    8. Mansoorian, Arman & Myers, Gordon M., 1993. "Attachment to home and efficient purchases of population in a fiscal externality economy," Journal of Public Economics, Elsevier, vol. 52(1), pages 117-132, August.
    9. Fisher-Vanden, Karen & Ho, Mun S., 2007. "How do market reforms affect China's responsiveness to environmental policy?," Journal of Development Economics, Elsevier, vol. 82(1), pages 200-233, January.
    10. Gernot Klepper & Sonja Peterson, 2006. "Emissions Trading, CDM, JI, and More: The Climate Strategy of the EU," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-26.
    11. Nicolaas Groenewold & Alfred Hagger & John Madden, 2003. "Interregional transfers: A political-economy CGE approach," Economics of Governance, Springer, vol. 82(4), pages 535-554, November.
    12. Liu, Zhiqiang, 2005. "Institution and inequality: the hukou system in China," Journal of Comparative Economics, Elsevier, vol. 33(1), pages 133-157, March.
    13. Beladi, Hamid & Rapp, John, 1993. "Urban Unemployment and the Backward Incidence of Pollution Control," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 27(2), pages 153-163.
    14. Vennemo, Haakon & Aunan, Kristin & Jianwu, He & Tao, Hu & Shantong, Li, 2009. "Benefits and costs to China of three different climate treaties," Resource and Energy Economics, Elsevier, vol. 31(3), pages 139-160, August.
    15. Liang, Qiao-Mei & Fan, Ying & Wei, Yi-Ming, 2007. "Carbon taxation policy in China: How to protect energy- and trade-intensive sectors?," Journal of Policy Modeling, Elsevier, vol. 29(2), pages 311-333.
    16. Silva, Emilson C. D. & Caplan, Arthur J., 1997. "Transboundary Pollution Control in Federal Systems," Journal of Environmental Economics and Management, Elsevier, vol. 34(2), pages 173-186, October.
    17. Petchey, Jeffrey, 1995. "Resource Rents, Cost Differences and Fiscal Equalization," The Economic Record, The Economic Society of Australia, vol. 71(215), pages 343-353, December.
    18. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    19. Liang, Qiao-Mei & Wei, Yi-Ming, 2012. "Distributional impacts of taxing carbon in China: Results from the CEEPA model," Applied Energy, Elsevier, vol. 92(C), pages 545-551.
    20. Boucekkine Raouf & Germain Marc, 2009. "The Burden Sharing of Pollution Abatement Costs in Multi-Regional Open Economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-34, June.
    21. Nordhaus, William, 1982. "How Fast Should We Graze the Global Commons?," American Economic Review, American Economic Association, vol. 72(2), pages 242-246, May.
    22. Caplan, Arthur J. & Silva, Emilson C.D., 2005. "An efficient mechanism to control correlated externalities: redistributive transfers and the coexistence of regional and global pollution permit markets," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 68-82, January.
    23. Zhang, ZhongXiang, 2000. "Can China afford to commit itself an emissions cap? An economic and political analysis," Energy Economics, Elsevier, vol. 22(6), pages 587-614, December.
    24. Aunan, Kristin & Berntsen, Terje & O'Connor, David & Persson, Therese Hindman & Vennemo, Haakon & Zhai, Fan, 2007. "Benefits and costs to China of a climate policy," Environment and Development Economics, Cambridge University Press, vol. 12(03), pages 471-497, June.
    25. Canfei He & Yehua Dennis Wei & Xiuzhen Xie, 2008. "Globalization, Institutional Change, and Industrial Location: Economic Transition and Industrial Concentration in China," Regional Studies, Taylor & Francis Journals, vol. 42(7), pages 923-945.
    26. Brun, J. F. & Combes, J. L. & Renard, M. F., 2002. "Are there spillover effects between coastal and noncoastal regions in China?," China Economic Review, Elsevier, vol. 13(2-3), pages 161-169.
    27. Rosendahl, Knut Einar, 2008. "Incentives and prices in an emissions trading scheme with updating," Journal of Environmental Economics and Management, Elsevier, vol. 56(1), pages 69-82, July.
    28. repec:wsi:ccexxx:v:02:y:2011:i:01:n:s201000781100019x is not listed on IDEAS
    29. Costas Hadjiyiannis & Panos Hatzipanayotou & Michael S. Michael, 2009. "Public Pollution Abatement, Regional Capital Mobility, and Tax Competition," Southern Economic Journal, Southern Economic Association, vol. 75(3), pages 703-719, January.
    30. Nordhaus, William D & Yang, Zili, 1996. "A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies," American Economic Review, American Economic Association, vol. 86(4), pages 741-765, September.
    31. Petchey, Jeffrey & Shapiro, Perry, 2000. "The Efficiency of State Taxes on Mobile Labour Income," The Economic Record, The Economic Society of Australia, vol. 76(234), pages 285-296, September.
    32. Silva, Emilson C.D. & Yamaguchi, Chikara, 2010. "Interregional competition, spillovers and attachment in a federation," Journal of Urban Economics, Elsevier, vol. 67(2), pages 219-225, March.
    33. Pei-Chien Lin & Chun-Hung Lin & I-Ling Ho, 2013. "Regional convergence or divergence in China? Evidence from unit root tests with breaks," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 50(1), pages 223-243, February.
    34. Demurger, Sylvie, 2001. "Infrastructure Development and Economic Growth: An Explanation for Regional Disparities in China?," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 95-117, March.
    35. H. Spencer Banzhaf & B. Andrew Chupp, 2010. "Heterogeneous Harm vs. Spatial Spillovers: Environmental Federalism and US Air Pollution," NBER Working Papers 15666, National Bureau of Economic Research, Inc.
    36. Beladi, Hamid & Frasca, Ralph, 1996. "Regional pollution and multinational firms," Ecological Economics, Elsevier, vol. 17(2), pages 117-125, May.
    37. Moriki Hosoe & Tohru Naito, 2006. "Trans-boundary pollution transmission and regional agglomeration effects-super-," Papers in Regional Science, Wiley Blackwell, vol. 85(1), pages 99-120, March.
    38. Wang, Zheng & Li, Hua-Qun & Wu, Jing & Gong, Yi & Zhang, Huan-Bo & Zhao, Chen, 2010. "Policy modeling on the GDP spillovers of carbon abatement policies between China and the United States," Economic Modelling, Elsevier, vol. 27(1), pages 40-45, January.
    39. Nicolaas Groenewold & Alfred Hagger, 2007. "The effects of fiscal equalisation in a model with endogenous regional governments: an analysis in a two-region numerical model," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 41(2), pages 353-374, June.
    40. Su, Jian & Jefferson, Gary H., 2012. "Differences in returns to FDI between China's coast and interior: One country, two economies?," Journal of Asian Economics, Elsevier, vol. 23(3), pages 259-269.
    41. Philip D. Adams, 2007. "Insurance against Catastrophic Climate Change: How Much Will an Emissions Trading Scheme Cost Australia?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 40(4), pages 432-452, December.
    42. Nicolaas Groenewold & Anping Chen & Guoping Lee, 2008. "Linkages between China’s Regions," Books, Edward Elgar Publishing, number 12710.
    43. Petchey, Jeffrey D, 1993. "Equalisation in a Federal Economy with Inter-state Migration," Australian Economic Papers, Wiley Blackwell, vol. 32(61), pages 336-354, December.
    44. Wang, Tao & Watson, Jim, 2010. "Scenario analysis of China's emissions pathways in the 21st century for low carbon transition," Energy Policy, Elsevier, vol. 38(7), pages 3537-3546, July.
    45. Garbaccio, Richard F. & Ho, Mun S. & Jorgenson, Dale W., 1999. "Controlling carbon emissions in China," Environment and Development Economics, Cambridge University Press, vol. 4(04), pages 493-518, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uwa:wpaper:12-14. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Verity Chia). General contact details of provider: http://edirc.repec.org/data/deuwaau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.