Recycling scheme of carbon pricing for inclusive decarbonization and energy transition: A recursive computable general equilibrium analysis in China

Revenue recycling is crucial for carbon pricing to achieve inclusive decarbonization and energy transition. Several studies have documented carbon pricing recycling, but few focused on mixed recycling schemes that allocate revenues across multiple institutions. To fill this knowledge gap, we employ a newly developed recursive computable general equilibrium model to explore the socioeconomic consequences of various recycling schemes in the context of China. We find that: (1) Although carbon pricing promotes renewable energy, it adversely affects social welfare and urban–rural equality. When executing the recycling scheme, this negative effect is alleviated. (2) All single recycling scenarios fail to yield a double dividend. They remain detrimental to social welfare and urban–rural equality. (3) Despite small welfare loss, a moderate-share renewables-based mixed recycling scheme reduces urban–rural inequality while favoring decarbonization and energy transition. Our study calls for incorporating mixed recycling options into the policy toolbox in advancing carbon pricing.