CAN CARBON TAX COMPLEMENT EMISSION TRADING SCHEME? THE IMPACT OF CARBON TAX ON ECONOMY, ENERGY AND ENVIRONMENT IN CHINA

Abstract

The problems of excessive CO2 emissions and global warming caused by human activities are becoming more serious. Carbon Tax (CT) and Emission Trading Scheme (ETS) are popular emission mitigation mechanisms. This paper establishes four counter-factual (CF) scenarios with different CT rate, and constructs a dynamic recursive computable general equilibrium (CGE) model, named China Energy-Environment-Economy Analysis (CEEEA) model, to study the impact of different CT rate on the economy, energy and environment. The results indicate that if CT complement ETS, and the cap of ETS is based on grandfathering method, the carbon trading price will reduce due to the changes in carbon allowances demand and supply. CT can share the mitigation pressure from ETS coverages into non-ETS coverages. When CT complement ETS but nothing is changed in mechanism of emission trading, the total emission mitigation effect will reduce slightly but the mitigation cost will reduce significantly. All in all, using CT as the supplement is a good mitigation strategy to release Gross Domestic Product (GDP) loss. But if we want to get more mitigation effect, rising CT rate or a stricter carbon cap may help.