Comparing climate policies to reduce carbon emissions in China

Currently, China is the largest carbon emitter mainly due to growing consumption of fossil fuels. In 2009, the Chinese government committed itself to reducing domestic carbon emissions per unit of GDP by 40–45% by 2020 compared to 2005 levels. Therefore, it is a top priority for the Chinese government to adopt efficient policy instruments to reduce its carbon intensity. Against this background, this paper develops a general equilibrium model and seeks to provide empirical contributions by comparing the potential impacts of several different policy options to reduce China's carbon emissions. The main findings are as follows. Firstly, these climate policies would affect the structure of economy and contribute to carbon emissions reduction and carbon intensity reduction. Secondly, there would be significant differences in the economic and environmental effects among different climate policies and hence, the government would trade-off among different economic objectives to overcome any potential resistances. Thirdly, there would be considerable differences in the emissions effects of absolute and intensity-based carbon emissions controls, implying that the government might adopt different climate policies for absolute or intensity-based carbon emissions controls. Looking ahead, the government should trade-off among different objectives when designing climate reforms. - Highlights: • We develop a static general equilibrium model to simulate the impacts of climate policies. • We compare the potential impacts of various climate policies in China. • We discuss how to design these policies to make them more effective