IDEAS home Printed from https://ideas.repec.org/p/cop/wpaper/g-318.html
   My bibliography  Save this paper

Energy and Economic Implications of Carbon Neutrality in China -- A Dynamic General Equilibrium Analysis

Author

Listed:
  • Shenghao Feng
  • Xiujian Peng
  • Philip Adams

Abstract

This study investigates the energy and economic implications of China's carbon neutrality path over the period of 2020 to 2060. We use a recursive dynamic CGE model, CHINAGEM-E, to conduct the analysis. Notable advancements from the original CHINAGEM model include: 1) detailed energy sector disaggregation, 2) a new electricity generation nesting structure, and 3) carbon capture and storage (CCS) mechanisms. Our simulation shows that to achieve carbon neutrality in 2060, China needs change its energy consumption structure significantly. Coal and gas consumption will decline dramatically while the demand for renewable energy, especially demand for solar and wind energy will increase considerably. However, the negative effects of the dramatic carbon emission reduction on China's macro economy is limited. In particular, by 2060 real GDP will be 1.36 percent lower in carbon neutrality scenario (CNS) than in the base case scenario. The carbon price level will be 1614 CNY per tonne of carbon dioxide in 2060 in CNS. The substantial changes in China's energy structure imply significant changes to its fossil fuel imports. China's import demand for coal, crude oil and gas will all fall sharply. By 2060, China's imports of coal and gas will be more than 60% lower and its oil imports will be around 50% lower than their respective base-case levels.

Suggested Citation

  • Shenghao Feng & Xiujian Peng & Philip Adams, 2021. "Energy and Economic Implications of Carbon Neutrality in China -- A Dynamic General Equilibrium Analysis," Centre of Policy Studies/IMPACT Centre Working Papers g-318, Victoria University, Centre of Policy Studies/IMPACT Centre.
    • Handle: RePEc:cop:wpaper:g-318
    as

    Download full text from publisher

    File URL: https://www.copsmodels.com/ftp/workpapr/g-318.pdf
    File Function: Initial version, 2021-08
    Download Restriction: no
    File URL: https://www.copsmodels.com/elecpapr/g-318.htm
    File Function: Local abstract: may link to additional material.
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Quarton, Christopher J. & Samsatli, Sheila, 2020. "The value of hydrogen and carbon capture, storage and utilisation in decarbonising energy: Insights from integrated value chain optimisation," Applied Energy, Elsevier, vol. 257(C).
    2. Zhu, Yong & Zhai, Rongrong & Qi, Jiawei & Yang, Yongping & Reyes-Belmonte, M.A. & Romero, Manuel & Yan, Qin, 2017. "Annual performance of solar tower aided coal-fired power generation system," Energy, Elsevier, vol. 119(C), pages 662-674.
    3. Haakon Vennemo & Jianwu He & Shantong Li, 2014. "Macroeconomic Impacts of Carbon Capture and Storage in China," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 59(3), pages 455-477, November.
    4. Chris Bataille & Mark Jaccard & John Nyboer & Nic Rivers, 2006. "Towards General Equilibrium in a Technology-Rich Model with Empirically Estimated Behavioral Parameters," The Energy Journal, , vol. 27(2_suppl), pages 1-20, June.
    5. Bovenberg, A.L. & de Mooij, R.A., 1994. "Environmental levies and distortionary taxation," Other publications TiSEM 4b32deaa-ec2f-4de7-b59b-9, Tilburg University, School of Economics and Management.
    6. Allan, Grant & Lecca, Patrizio & McGregor, Peter & Swales, Kim, 2014. "The economic and environmental impact of a carbon tax for Scotland: A computable general equilibrium analysis," Ecological Economics, Elsevier, vol. 100(C), pages 40-50.
    7. Hermeling, Claudia & Löschel, Andreas & Mennel, Tim, 2013. "A new robustness analysis for climate policy evaluations: A CGE application for the EU 2020 targets," Energy Policy, Elsevier, vol. 55(C), pages 27-35.
    8. Fujimori, Shinichiro & Masui, Toshihiko & Matsuoka, Yuzuru, 2014. "Development of a global computable general equilibrium model coupled with detailed energy end-use technology," Applied Energy, Elsevier, vol. 128(C), pages 296-306.
    9. Yinhua Mai & Peter B. Dixon & Maureen Rimmer, 2010. "CHINAGEM: A Monash-Styled Dynamic CGE Model of China," Centre of Policy Studies/IMPACT Centre Working Papers g-201, Victoria University, Centre of Policy Studies/IMPACT Centre.
    10. Weng, Yuwei & Cai, Wenjia & Wang, Can, 2021. "Evaluating the use of BECCS and afforestation under China’s carbon-neutral target for 2060," Applied Energy, Elsevier, vol. 299(C).
    11. Otto, Vincent M. & Loschel, Andreas & Dellink, Rob, 2007. "Energy biased technical change: A CGE analysis," Resource and Energy Economics, Elsevier, vol. 29(2), pages 137-158, May.
    12. Jiang, Jieyun & Rui, Zhenhua & Hazlett, Randy & Lu, Jun, 2019. "An integrated technical-economic model for evaluating CO2 enhanced oil recovery development," Applied Energy, Elsevier, vol. 247(C), pages 190-211.
    13. Jia, Zhijie & Lin, Boqiang, 2021. "How to achieve the first step of the carbon-neutrality 2060 target in China: The coal substitution perspective," Energy, Elsevier, vol. 233(C).
    14. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-1089, September.
    15. Feng, Shenghao & Zhang, Keyu, 2018. "Fuel-factor nesting structures in CGE models of China," Energy Economics, Elsevier, vol. 75(C), pages 274-284.
    16. Paltsev, Sergey & Morris, Jennifer & Kheshgi, Haroon & Herzog, Howard, 2021. "Hard-to-Abate Sectors: The role of industrial carbon capture and storage (CCS) in emission mitigation," Applied Energy, Elsevier, vol. 300(C).
    17. Fan, Jing-Li & Xu, Mao & Li, Fengyu & Yang, Lin & Zhang, Xian, 2018. "Carbon capture and storage (CCS) retrofit potential of coal-fired power plants in China: The technology lock-in and cost optimization perspective," Applied Energy, Elsevier, vol. 229(C), pages 326-334.
    18. Nordhaus, William D & Yang, Zili, 1996. "A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies," American Economic Review, American Economic Association, vol. 86(4), pages 741-765, September.
    19. Kurz, W.A. & Dymond, C.C. & White, T.M. & Stinson, G. & Shaw, C.H. & Rampley, G.J. & Smyth, C. & Simpson, B.N. & Neilson, E.T. & Trofymow, J.A. & Metsaranta, J. & Apps, M.J., 2009. "CBM-CFS3: A model of carbon-dynamics in forestry and land-use change implementing IPCC standards," Ecological Modelling, Elsevier, vol. 220(4), pages 480-504.
    20. Hancock, Linda & Ralph, Natalie, 2021. "A framework for assessing fossil fuel ‘retrofit’ hydrogen exports: Security-justice implications of Australia’s coal-generated hydrogen exports to Japan," Energy, Elsevier, vol. 223(C).
    21. Cui, Qi & Liu, Yu & Ali, Tariq & Gao, Ji & Chen, Hao, 2020. "Economic and climate impacts of reducing China's renewable electricity curtailment: A comparison between CGE models with alternative nesting structures of electricity," Energy Economics, Elsevier, vol. 91(C).
    22. Tapia, John Frederick D. & Lee, Jui-Yuan & Ooi, Raymond E.H. & Foo, Dominic C.Y. & Tan, Raymond R., 2016. "Optimal CO2 allocation and scheduling in enhanced oil recovery (EOR) operations," Applied Energy, Elsevier, vol. 184(C), pages 337-345.
    23. Huang, Xiaodan & Chang, Shiyan & Zheng, Dingqian & Zhang, Xiliang, 2020. "The role of BECCS in deep decarbonization of China's economy: A computable general equilibrium analysis," Energy Economics, Elsevier, vol. 92(C).
    24. Liu, Yu & Lu, Yingying, 2015. "The Economic impact of different carbon tax revenue recycling schemes in China: A model-based scenario analysis," Applied Energy, Elsevier, vol. 141(C), pages 96-105.
    25. Babatunde, Kazeem Alasinrin & Begum, Rawshan Ara & Said, Fathin Faizah, 2017. "Application of computable general equilibrium (CGE) to climate change mitigation policy: A systematic review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 78(C), pages 61-71.
    26. Nordhaus, William D., 1993. "Rolling the 'DICE': an optimal transition path for controlling greenhouse gases," Resource and Energy Economics, Elsevier, vol. 15(1), pages 27-50, March.
    27. Zha, Donglan & Zhou, Dequn, 2014. "The elasticity of substitution and the way of nesting CES production function with emphasis on energy input," Applied Energy, Elsevier, vol. 130(C), pages 793-798.
    28. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 157-183, August.
    29. Guo, Jian-Xin & Huang, Chen, 2020. "Feasible roadmap for CCS retrofit of coal-based power plants to reduce Chinese carbon emissions by 2050," Applied Energy, Elsevier, vol. 259(C).
    30. Bhattacharyya, Subhes C., 1996. "Applied general equilibrium models for energy studies: a survey," Energy Economics, Elsevier, vol. 18(3), pages 145-164, July.
    31. Xuejin Zuo & Xiujian Peng & Xin Yang & Philip Adams & Meifeng Wang, 2020. "Population Ageing and the Impact of Later Retirement on the Pension System in China: An Applied Dynamic General Equilibrium Analysis," Centre of Policy Studies/IMPACT Centre Working Papers g-303, Victoria University, Centre of Policy Studies/IMPACT Centre.
    32. Beckman, Jayson & Hertel, Thomas & Tyner, Wallace, 2011. "Validating energy-oriented CGE models," Energy Economics, Elsevier, vol. 33(5), pages 799-806, September.
    33. Adams, Philip D. & Parmenter, Brian R., 2013. "Computable General Equilibrium Modeling of Environmental Issues in Australia," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 553-657, Elsevier.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Qi, Shaozhou & Cheng, Shihan & Tan, Xiujie & Feng, Shenghao & Zhou, Qi, 2022. "Predicting China's carbon price based on a multi-scale integrated model," Applied Energy, Elsevier, vol. 324(C).
    2. Lunyou Pei & Bing Wang & Ying Liu & Xiaoling Liu, 2023. "Optimization of Preventive Maintenance Timing of Highway Bridges Considering China’s “Dual Carbon” Target," Sustainability, MDPI, vol. 15(23), pages 1-15, November.
    3. Feng, Shenghao & Peng, Xiujian & Adams, Philip & Jiang, Dalin & Waschik, Robert, 2024. "Economic implications of carbon neutrality in China: A dynamic general equilibrium analysis," Economic Modelling, Elsevier, vol. 135(C).
    4. Shenghao Feng & Keyu Zhang & Xiujian Peng, 2021. "Elasticity of Substitution Between Electricity and Non-Electric Energy in the Context of Carbon Neutrality in China," Centre of Policy Studies/IMPACT Centre Working Papers g-323, Victoria University, Centre of Policy Studies/IMPACT Centre.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Feng, Shenghao & Peng, Xiujian & Adams, Philip & Jiang, Dalin & Waschik, Robert, 2024. "Economic implications of carbon neutrality in China: A dynamic general equilibrium analysis," Economic Modelling, Elsevier, vol. 135(C).
    2. Shenghao Feng & Keyu Zhang & Xiujian Peng, 2021. "Elasticity of Substitution Between Electricity and Non-Electric Energy in the Context of Carbon Neutrality in China," Centre of Policy Studies/IMPACT Centre Working Papers g-323, Victoria University, Centre of Policy Studies/IMPACT Centre.
    3. Qi, Shaozhou & Cheng, Shihan & Tan, Xiujie & Feng, Shenghao & Zhou, Qi, 2022. "Predicting China's carbon price based on a multi-scale integrated model," Applied Energy, Elsevier, vol. 324(C).
    4. Hu, Yingying & Wu, Wei, 2023. "Can fossil energy make a soft landing？— the carbon-neutral pathway in China accompanying CCS," Energy Policy, Elsevier, vol. 174(C).
    5. Kakeu, Johnson & Agbo, Maxime, 2022. "International transfer to reduce global inequality and transboundary pollution," Energy Economics, Elsevier, vol. 114(C).
    6. Bohringer, Christoph & Loschel, Andreas, 2006. "Computable general equilibrium models for sustainability impact assessment: Status quo and prospects," Ecological Economics, Elsevier, vol. 60(1), pages 49-64, November.
    7. Rivers, Nic, 2010. "Impacts of climate policy on the competitiveness of Canadian industry: How big and how to mitigate?," Energy Economics, Elsevier, vol. 32(5), pages 1092-1104, September.
    8. Jan Siegmeier & Linus Mattauch & Max Franks & David Klenert & Anselm Schultes & Ottmar Edenhofer, 2015. "A Public Finance Perspective on Climate Policy: Six Interactions That May Enhance Welfare," Working Papers 2015.31, Fondazione Eni Enrico Mattei.
    9. Wiepke Wissema & Rob Dellink, 2010. "AGE assessment of interactions between climate change policy instruments and pre-existing taxes: the case of Ireland," International Journal of Global Environmental Issues, Inderscience Enterprises Ltd, vol. 10(1/2), pages 46-62.
    10. Freire-González, Jaume, 2018. "Environmental taxation and the double dividend hypothesis in CGE modelling literature: A critical review," Journal of Policy Modeling, Elsevier, vol. 40(1), pages 194-223.
    11. Don Fullerton & Gilbert E. Metcalf, 2002. "Environmental Controls, Scarcity Rents, and Pre-existing Distortions," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 26, pages 504-522, Edward Elgar Publishing.
    12. Cai, Yiyong & Newth, David & Finnigan, John & Gunasekera, Don, 2015. "A hybrid energy-economy model for global integrated assessment of climate change, carbon mitigation and energy transformation," Applied Energy, Elsevier, vol. 148(C), pages 381-395.
    13. MUNK, Knud J., 2011. "Optimal taxation in the presence of a congested public good and an application to transport policy," LIDAM Discussion Papers CORE 2011057, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. Don Fullerton & Inkee Hong & Gilbert E. Metcalf, 2001. "A Tax on Output of the Polluting Industry Is Not a Tax on Pollution: The Importance of Hitting the Target," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 13-44, National Bureau of Economic Research, Inc.
    15. Benjamin Jones & Michael Keen & Jon Strand, 2013. "Fiscal implications of climate change," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(1), pages 29-70, February.
    16. Brita Bye & Karine Nyborg, 1999. "The Welfare Effects of Carbon Policies: Grandfathered Quotas versus Differentiated Taxes," Discussion Papers 261, Statistics Norway, Research Department.
    17. Morgenstern, Richard D., 1995. "Environmental Taxes: Dead or Alive?," Discussion Papers 10595, Resources for the Future.
    18. Rafael Aigner, 2014. "Environmental Taxation and Redistribution Concerns," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(2), pages 249-277, June.
    19. repec:dgr:uvatin:20020095 is not listed on IDEAS
    20. Wolfram F. Richter, 2007. "Taxing Human Capital Efficiently – The Double Dividend of Taxing Nonqualified Labour More Heavily Than Qualified Labour," Ruhr Economic Papers 0012, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    21. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 2003. "Environmental taxes with heterogeneous consumers: an application to energy consumption in France," Journal of Public Economics, Elsevier, vol. 87(12), pages 2791-2815, December.

    More about this item

    Keywords

    Carbon neutrality; economic implication; energy consumption; China; CGE;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cop:wpaper:g-318. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mark Horridge (email available below). General contact details of provider: https://edirc.repec.org/data/cpmonau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.