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Carbon market integration, productivity, and welfare: A quantitative analysis

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  • Yuying Liu
  • Yongjin Wang
  • Xiaofan Li

Abstract

China's carbon market is far from being integrated. This paper studies how carbon emissions reduction and carbon market integration affect China's aggregate productivity and welfare via a quantitative spatial general equilibrium model with CO2${\rm CO}_2$ as a by‐product of production. We find that (1) were carbon emission rights to be allowed to be traded across regions, (i) if there is no technological growth, China's overall productivity and real GDP would increase by 10.26%, and 27.19% respectively, and welfare would decline slightly by 0.92%; (ii) if the technology grows at the present growth rate, China's total output, real GDP and welfare would increase by 9.97, 38.57, and 7.79%, respectively; (2) were nine regional carbon trading markets integrated, China's overall productivity, real GDP and welfare would increase by 4.35, 29.17, and 7.75%, respectively. Carbon market integration enables China to achieve economic development at a lower CO2${\rm CO}_2$ cost.

Suggested Citation

  • Yuying Liu & Yongjin Wang & Xiaofan Li, 2024. "Carbon market integration, productivity, and welfare: A quantitative analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 38(5), pages 1819-1845, December.
    • Handle: RePEc:bla:jecsur:v:38:y:2024:i:5:p:1819-1845
    DOI: 10.1111/joes.12637
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