Impacts of Carbon Pricing in Reducing the Carbon Intensity of China's GDP

108 Pages Posted: 19 Jul 2016

See all articles by Jing Cao

Jing Cao

Tsinghua University

Mun S. Ho

Resources for the Future

Govinda R. Timilsina

World Bank - Development Research Group (DECRG)

Date Written: June 29, 2016

Abstract

In contributing to global climate change mitigation efforts as agreed in Paris in 2015, China has set a target of reducing the carbon dioxide intensity of gross domestic product by 60-65 percent in 2030 compared with 2005 levels. Using a dynamic computable general equilibrium model of China, this study analyzes the economic and greenhouse gas impacts of meeting those targets through carbon pricing. The study finds that the trajectory of carbon prices to achieve the target depends on several factors, including how the carbon price changes over time and how carbon revenue is recycled to the economy. The study finds that carbon pricing that starts at a lower rate and gradually rises until it achieves the intensity target would be more efficient than a carbon price that remains constant over time. Using carbon revenue to cut existing distortionary taxes reduces the impact on the growth of gross domestic product relative to lump-sum redistribution. Recycling carbon revenue through subsidies to renewables and other low-carbon energy sources also can meet the targets, but the impact on the growth of gross domestic product is larger than with the other policies considered.

Keywords: Climate Change Mitigation and Green House Gases, Science of Climate Change, Climate Change and Health, Climate Change and Environment, Carbon Policy and Trading

Suggested Citation

Cao, Jing and Ho, Mun S. and Timilsina, Govinda R., Impacts of Carbon Pricing in Reducing the Carbon Intensity of China's GDP (June 29, 2016). World Bank Policy Research Working Paper No. 7735. Available at SSRN: https://ssrn.com/abstract=2811383

Jing Cao

Tsinghua University ( email )

Beijing, 100084
China

Mun S. Ho (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Govinda R. Timilsina

World Bank - Development Research Group (DECRG) ( email )

1818 H Street NW
MSN3-311
Washington, DC 20433
United States

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