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No pain, no gain? Simulation of carbon reduction potential and socioeconomic effects of voluntary carbon trading in China during 2021–2060

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  • Fan, Dian
  • Chen, Shaoqing

Abstract

Voluntary carbon market has become a key mechanism of stimulating carbon emission mitigation actions globally. In this study, we calculate the emission reduction potential of Carbon Generalized System of Preferences (CGSP), a dominated voluntary carbon trading mechanism in China, including on-going projects of forestry carbon sinks, waste clothes reuse, installation of distributed photovoltaic power generation system, and usage of energy-conserving devices, as well as other extended methods for their future mitigation potentials. We employ a computable general equilibrium model to delve into the effects of CGSP mechanism on carbon price, economic growth and household consumption, assessing its impact on the equitability of social welfares between urban and rural residents during 2021–2060. Our results indicate that employing the current methods for CGSP would lead to around 5.0 Mt CO2 reduction annually. since 2018, whereas adopting the extended methods would yield reductions of 157.1 Mt. Promoting forestry carbon sinks and energy-conserving appliances offers the most prominent emission reduction, while low-carbon travel shows the biggest potential going forward. CGSP will loosen carbon constraints on industries in the market and result in a lower carbon price, reducing the economic cost of carbon trading without compromising China's carbon peaking and carbon neutrality goals. Supplementing CGSP could reduce the GDP loss by up to 0.2 trillion Yuan by 2030 and 0.9 trillion Yuan by 2060, compared to the sole operation of compliance carbon trading market. Provided fiscal stimulus policies, CGSP will further reduce GDP loss by 1.1 trillion Yuan in 2060. Different fiscal stimulus scenarios have a strong implication on welfares of urban and rural residents, wherein monetary equivalent incentive will reduce urban-rural income gap by up to 718 Yuan/capita in 2060.

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  • Fan, Dian & Chen, Shaoqing, 2024. "No pain, no gain? Simulation of carbon reduction potential and socioeconomic effects of voluntary carbon trading in China during 2021–2060," Applied Energy, Elsevier, vol. 375(C).
    • Handle: RePEc:eee:appene:v:375:y:2024:i:c:s0306261924015782
    DOI: 10.1016/j.apenergy.2024.124195
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