An analysis of China's climate policy using the China-in-Global Energy Model

The primary approach to address climate change in China has been the use of CO₂ intensity targets coupled with targets for low carbon energy deployment. We evaluate the impact of extending similar targets through 2050 on China's energy use profile and CO₂ emissions trajectory using the China-in-Global Energy Model (C-GEM). The C-GEM is a global computable equilibrium model that includes energy and economic data provided by China's statistical agencies, calibration of savings, labor productivity, and capital productivity dynamics specific to China's stage of development, and regional aggregation that resolves China's major trading partners. We analyze the combined impact of extending CO₂ intensity targets, implemented via a cap-and-trade program, and low carbon energy policies (directives for nuclear power expansion and feed-in tariffs for wind, solar, and biomass energy) through 2050. Although with the policy, simulated CO₂ emissions are around 43% lower in 2050 relative to a reference (No Policy) counterfactual, China's CO₂ emissions still increase by over 60% between 2010 and 2050. Curbing the rise in China's CO₂ emissions will require fully implementing a CO₂ price, which will need to rise to levels higher than $25/ton in order to achieve China's stated goal of peaking CO₂ emissions by 2030.     

How do market reforms affect China's responsiveness to environmental policy?

A large percentage of total investment in China is allocated by the central government at below-market interest rates in pursuit of non-economic objectives. This has resulted in low rates of return and a high number of non-performing loans, threatening the future health of the Chinese economy. As a result, reform of capital markets is a high priority of the Chinese government. At the same time, the country is implementing various environmental policies to deal with serious pollution issues. In this paper we ask how reforms of the capital market will affect the functioning of a carbon tax. This allows us to assess how China's willingness to join global efforts to reduce carbon emissions is influenced by China's current efforts to reduce investment subsidies. We compare the costs of a carbon tax in a reformed economy with the costs of a carbon tax in the current subsidized economy. We find that in the subsidized economy the tax-interaction effect dampens the effect of a carbon tax resulting in smaller reductions in emissions than what would result in a reformed economy. Importantly, we also find that the effect on economic welfare from a carbon tax is lower in the subsidized economy; in fact, for lower levels of reductions, the carbon tax is actually welfare improving. These results have important implications for an economy undergoing economic transition. The carbon tax rate required to achieve a certain level of emission reductions will be higher in an economy with capital subsidies. However, the welfare implications of the tax indicate that the current system with capital subsidies is highly distorting implying that there is a high efficiency cost for the non-economic objectives the government is pursuing by maintaining this system of subsidies.     

Climate policy and the optimal extraction of high‐ and low‐carbon fossil fuels

Abstract. We study how restricting CO₂ emissions affects resource prices and depletion over time. We use a Hotelling‐style model with two non‐renewable fossil fuels that differ in their carbon content (e.g., coal and natural gas) and in addition are imperfect substitutes in final good production. We show that an economy facing a CO₂ flow‐constraint may substitute towards the relatively dirty input. As the economy tries to maximize output per unit of emissions it is not only carbon content that matters: productivity matters as well. With an announced constraint the economy first substitutes towards the less productive input such that more of the productive input is available when constrained. Preliminary empirical results suggest that it is cost‐effective to substitute away from dirty coal to cleaner oil or gas, but to substitute from natural gas towards the dirtier input oil.     

Climate Change Policy Options for Asian Economies: Findings from an Integrated Assessment Model

This study outlines potential futures for the global economy through the 2050 with a specific focus on the countries of Asia. With underlying assumptions about population and output growth, a baseline scenario assesses the growth of greenhouse gas emissions and the ensuing impacts on the climate. Under the baseline scenario, Asia's high growth leads to a strong rotation in global output and emissions by the year 2050. The analytical framework traces back the changes in temperature to economic damages – limited to the agricultural sectors. Parts of Asia are likely to see much higher dependence on food imports as a consequence of these damages. Various carbon tax scenarios are implemented to assess the potential for reducing carbon emissions. Because of the structure of their economies, Asian countries are likely to bear the greatest burden in reducing emissions in an efficient global tax scheme, but there is significant scope to ease this burden through financial transfers.     

The sequencing of reform policies in China's agricultural transition*

This paper provides evidence regarding gains due to agricultural market liberalization in China. We empirically identify the different effects that incentive and farm restructuring reforms and gradual market liberalization have on China's agricultural economy during its transition period. We find that average gains within the agricultural sector due to reforms that improved incentives and increased decision‐making authority of producers exceed gains due to market liberalization by a large margin. Our method of analyzing the effects of transition policies on economic performance can be generalized to other reform paths in other transition economies.     

Is Local Food More Environmentally Friendly? The GHG Emissions Impacts of Consuming Imported versus Domestically Produced Food

With the increased interest in the ‘carbon footprint’ of global economic activities, civil society, governments and the private sector are calling into question the wisdom of transporting food products across continents instead of consuming locally produced food. While the proposition that local consumption will reduce one’s carbon footprint may seem obvious at first glance, this conclusion is not at all clear when one considers that the economic emissions intensity of food production varies widely across regions. In this paper we concentrate on the tradeoff between production and transport emissions reductions by testing the following hypothesis: Substitution of domestic for imported food will reduce the direct and indirect Greenhouse Gas (GHG) emissions associated with consumption. We focus on ruminant livestock since it has the highest emissions intensity across food sectors, but we also consider other food products as well, and alternately perturb the mix of domestic and imported food products by a marginal (equal) amount. We then compare the emissions associated with each of these consumption changes in order to compute a marginal emissions intensity of local food consumption, by country and product. The variations in regional ruminant emissions intensities have profound implications for the food miles debate. While shifting consumption patterns in wealthy countries from imported to domestic livestock products reduces GHG emissions associated with international trade and transport activity, we find that these transport emissions reductions are swamped by changes in global emissions due to differences in GHG emissions intensities of production. Therefore, diverting consumption to local goods only reduces global emissions when undertaken in regions with relatively low emissions intensities. For non-ruminant products, the story is more nuanced. Transport costs are more important in the case of dairy products and vegetable oils. Overall, domestic emissions intensities are the dominant part of the food miles story in about 90 % of the country/commodity cases examined here.     

The Sleeping Giant Awakes: Projecting Global Implications of China's Energy Consumption

China's rapid economic growth has generated a surge in energy demand that is reallocating global fuel balances. We employ a global energy computable general‐equilibrium model to analyze alternative scenarios for economic growth, Chinese currency appreciation, and oil price shocks, with a special focus on China energy markets. Imports from the Middle East, Central Asia, Russia, and Sub‐Saharan Africa are found to comprise a growing share of China's energy. Imports to China grow from 12% of world energy imports in 2010 to 17% by 2050 when over 80% of China's oil demand will be imported.     

Optimal containment and policy differentiation under unilateral climate policy

Abstract Without a broad international agreement, climate policy is less effective, owing to carbon leakage. We investigate whether this negative effect can be addressed by partially containing the policy’s effects to intermediate goods sectors, such as electricity or transportation services. We use a three‐sector model to study a policy that taxes emissions caused by intermediate goods production while subsidizing the intermediate good. We characterize the optimal containment policy for combating carbon leakage and show that it complements the concept of policy differentiation.     

GHG mitigation schemes and energy policies: A model-based assessment for the Italian economy

We build up a large scale dynamic general equilibrium model embodying a cap on pollutant emissions, an electricity sector and fuel consumption to analyse climate-energy policies for the Italian economy. Our results show how the trade-off between environmental quality and economic activity can be effectively overcome by recycling the revenues from the sales of emission permits in labour tax reductions. A tax combination aimed at reducing the consumption of fossil fuel, while simultaneously decreasing taxes on labour, is expansionary, but the final outcome is influenced by the underlying GHG emission policy. Tax incentives encouraging the use of clean energy sources, by discouraging the use of fossil fuel, produce a sizeable reallocation of emissions across sectors and are found to be expansionary. Overall the paper highlights the non-trivial interactions between the different fiscal tools in hand to meet the legally binding commitment on emission reduction, while limiting the potential negative fallout on the economy.     

碳税对我国的影响及其政策响应

二氧化碳(CO2)是引起全球气候变化的最重要的温室气体(GHG)之一。温室气体的减排是当前国际社会普遍关注的热点环境问题。碳税常常被认为是成本有效的碳减排政策工具,目前已有一些国家征收碳税或能源税。文章介绍了碳税的理论基础及其在一些国家的征收实践,总结和分析了国内外一些学者关于实施碳税对温室气体减排、对经济和能源系统的影响的研究结果,并在此基础上讨论了我国对碳税制度的政策响应和对策。     

经济转轨中国有资本比重的最优路径选择——一个动态模型

This paper presents a dynamic model based on the utility maximum decisions of both the government and private sectors to study the optimal withdrawing path of state-owned capital in economic transition. Numerical simulation shows that: (1) an optimal transition path still exists when treating government and private sectors separately, (2) when the transition cost is higher than its critical value, the economy will never start a transition by itself. In addition, this analysis offers theoretical supports for some reform policies adopted by governments during transition. __________ Translated from Jingjixue Jikan 经济学(季刊) (China Economic(Quarterly)), 2007, 6(2): 561–580     

Capital Malleability, Emission Leakage and the Cost of Partial Climate Policies: General Equilibrium Analysis of the European Union Emission Trading System

Computable general equilibrium (CGE) models are the premier analytical platform for assessing the economic impacts of climate change mitigation. But these models tend to treat physical capital as “malleable”, capable of reallocation among sectors over the time-period for which equilibrium is solved. Because the extent to which capital adjustment costs might dampen reallocation is not well understood, there is concern that CGE assessments understate the true costs of greenhouse gas (GHG) reduction policies. This paper uses a multi-region, multi-sector CGE model to investigate cap-and-trade schemes, such as the European Union Emission Trading System which cover a subset of the economy, elucidating the effects of capital malleability on GHG abatement, the potential for emission leakage from abating to non-abating sectors, and the impacts on welfare. To simplify the complex interactions being simulated within the CGE model, that analysis is complemented with an analytical model. A partial climate policy results in negative internal carbon leakage, with emissions declining not only in capped sectors but also in non-regulated ones. This result is stronger when capital is intersectorally mobile. Interestingly, in partial climate policy settings capital malleability can amplify or attenuate welfare losses depending on the attributes of the economy.     

Scenario development in China's electricity sector

The continuing growth of China's electricity sector will affect global environmental and economic sustainability due to its impacts on greenhouse gas emissions and global resource depletion. In 2005, the generation of electricity in China resulted in the emissions of 2290 million metric tonnes of carbon dioxide (approximately 53% of the nation's total) and required 779 million metric tonnes of coal (approximately 50% of China's total coal consumption). These figures are expected to increase with China's economic growth. In order to gauge the range in which fuel consumption and CO₂ emissions could grow a scenario-based conceptual model has been developed by the authors (published in (vol.) of this journal). The application and analysis of this shows that under a business as usual (BAU) scenario, electricity generation could contribute upwards of 56% of China's energy related greenhouse gas emissions by 2020. Meanwhile, consumption of coal will also increase, growing to nearly 60% of total national demand by 2020. However, variations in a number of key drivers could produce significant deviation from the BAU scenario. With accelerated economic output, even with greater technological advances and greater potential to bring natural gas on stream, carbon dioxide emissions would rise 10% above the BAU. Alternatively, in a scenario where China's economy grows at a tempered pace, less investment would be available for advanced technologies, developing natural gas infrastructure, or nuclear energy. In this scenario, reduced economic growth and electricity demand would thereby be countered by reduced efficiency and a higher contribution of coal.     

MODELLING THE TRANSITION TOWARDS THE RENMINBI'S FULL CONVERTIBILITY: IMPLICATIONS FOR CHINA'S GROWTH

There is a widespread consensus that China needs to rebalance its export‐driven growth paradigm towards a more consumption‐based one and that such process is to be accompanied by the transition towards the renminbi's full convertibility. However, the Chinese authorities have so far acted with great caution because this transition cannot but accelerate the slowdown of China's growth which will likely occur because of other structural factors. We address these issues by means of a two‐country two‐stage (before and after the renminbi's full convertibility) model, which reproduces some qualitative features of China's growth pattern and its relationship with the United States. We analyse the extent to which altering the Chinese exchange rate regime, as well as other policies affecting sensitive social and economic issues, may impact on the short‐, medium‐ and long‐term evolution of the Chinese economy. The paper shows that by lifting the controls on the capital account and letting the currency float, the Chinese authorities will renounce those policy instruments for controlling the allocation of the national resources and the dynamics of China's economy.     

Input-output subsystems and pollution: An application to the service sector and CO2 emissions in Spain

The analysis of input-output subsystems provides a useful tool for studying the productive structure of the different sectors of an economy. In this paper we develop this analysis to the study of the CO₂ emissions associated to the group of branches of the service sector. The decomposition of the total production of the services subsystem allows us to decompose the CO₂ emissions into five different components (own, demand volume, feed-back, internal and spill over components). From the results obtained, we can highlight the different roles played by the different branches of services. Transport activities are the services with the highest level of the direct emissions generated in the production of the sector. These activities are required by the other sectors of the economy to a greater degree than they are for their own final demand. Therefore, the production sold to other sectors causes more emissions than its own final demand. However, in the case of other service activities, direct and indirect emissions related to final demand are much more important, due to the strong pull effect of service activities on other activities of the economy. In this respect, Wholesale and retail trade, Hotels and restaurants, Real estate, renting and business activities, and Public administration services should be highlighted. These services receive scarce attention in the design of policies aimed at reducing emissions, but are notably responsible for the major increase in emissions experienced in recent years.     

Chinese Saving Rates from 1953 to 2012: Trends,Compositions and Prospects

This study conducts a long‐run analysis on the trends and components of Chinese saving rates from 1953 to 2012. We identify two structural changes in aggregate saving rates around 1978 and 2001, and examine them through a decomposition analysis of the income distribution and sector‐specific saving rates. The following key findings are obtained. First, the major trends and compositions of Chinese saving rates changed markedly over the period considered, which explains the changes of aggregate saving rates with the dramatic economic transition from a planned economy to a market‐oriented economy. Second, we investigate the surge in aggregate saving rates from 2001 to 2012 based on a series of institutional factors, such as the evolving labour market, domestic economic policy adjustments and changes in external economic conditions caused by China's accession to the World Trade Organization in 2001 and the 2008 global financial crisis. Finally, we present the future prospects for the high aggregate saving rates in China based on several evolving economic, demographic and policy trends. We argue that Chinese saving rates have peaked in recent years and that a declining trend is expected, which will contribute to the economic rebalancing of the country.     

Unemployment and the dynamics of political support for economic reforms

I analyze the dynamics of political support for economic reforms using a version of Rodrik's (1995) two-sector model of the transition economy. The key role is played by the pattern of flows between the state and private sectors and unemployment. It is shown that while the workers in the private sector always support rapid reforms, the workers in the state sector and the unemployed will support rapid reforms only at the outset of the transition. Later, state-sector workers and unemployed vote for a reduction in the speed of reforms.     

中国与印度人口转变的经济效应——基于1960-2010年时间序列数据的实证分析

使用19个亚洲国家、1960-2010年的面板数据,比较了印度和中国人口转变的过程及所带来的经济增长,预测了中印两国人口发展趋势及对经济增长的贡献。样本期内,中国人口转变因素解释了人均GDP增长的35.3%,而印度为29.1%,态势上,印度人口转变对经济增长的贡献一直平稳上升;而中国经历了20世纪80年代的高点之后开始下降;未来发展趋势上,中国人口转变带来的人口红利会在本世纪30年代变为负数;而印度在2050年前一直维持较大的正值。     

On the impacts of carbon tax and technological progress on China

Using a dynamic national computable general equilibrium model, we investigate the impact of carbon tax and energy efficiency improvement on the economy and environment of China. The Chinese social account matrix is presented based upon the latest input–output table (2012 IO table) and other data. The business as usual (BAU) scenario is designed according to several forecasts about China by 2030, followed by six policy scenarios, including different levels of carbon tax and technological progress as well as their combinations. The results show that carbon tax will frustrate the overall economic growth slightly. The CO₂ emission will be 13.81% lower in 2030 compared to BAU case if the carbon tax scheme is carried out at a rate of 200 RMB/ton of CO₂. Technological progress will stimulate the economic growth, enrich the household and government income, increase total investment and make most sectors prosperous with the exception of energy industries.     

A note on measuring the unofficial economy in the former Soviet Republics1

This note argues that the most commonly used estimates of the size of the unofficial economies in the former Soviet republics are flawed. Most important, they are based on calculations that disregard the variation in unofficial economic activity across space in the pre‐transition Soviet Union. In addition, these estimates appear to understate the size of the unofficial economies in these countries. We propose alternative estimates and find that they are more strongly related to the institutional factors commonly used to explain the size of the unofficial sector. Our estimates also show that the size of a country's pre‐transition unofficial economy is an important predictor of its size during the transition. This suggests that the size of the unofficial economy is to a large extent a historical phenomenon only partly determined by contemporary institutional factors. JEL classification: O17, P2, P3.