How does the low-carbon development of urban agglomeration narrow income inequality in China? A perspective of carbon pricing with revenue recycling schemes

Urban agglomeration plays an increasingly important role in global climate change. To reduce carbon emissions, carbon pricing is a commonly used policy instrument. While the implementation of carbon pricing may widen income inequality. However, it is unclear how to narrow income inequality in the process of urban agglomeration's low-carbon development. To answer this question, we evaluate the impacts of integrated carbon pricing policy with/without various revenue recycling (RR) schemes on the economy and income inequality of Jing-Jin-Ji urban agglomeration using a city-level multi-regional computable general equilibrium (CGE) model. Our findings indicate that carbon pricing without RR schemes damages the gross domestic product (GDP), welfare, and household income, especially in cities located in Hebei Province. Nevertheless, it reduces carbon emissions, notably in Tangshan and Handan. With RR, not only do GDP and welfare losses diminish, but income inequality also decreases when revenues are recycled to rural, particularly rural low-income households in Hebei. These results provide valuable insights for designing a proper revenue recycling scheme to promote income equality. Furthermore, since no single RR scheme can simultaneously maximize both GDP and welfare, it is crucial to balance economic development with welfare improvement when choosing revenue recycling schemes to complement carbon pricing.